Issue link: https://read.uberflip.com/i/1490964
For existing institutional investor client use only. Not for public distribution. The information contained herein is confidential and proprietary to SEI and is not to be reproduced or made available in any form to any persons without the express prior written consent of SEI. 11 ©2022 SEI Data as of 9/30/20XX unless otherwise noted. Economic outlook The good news • Inflation in the U.S. has probably peaked, but SEI does not expect it to fall as rapidly or as far as the Federal Reserve is projecting. • Similar to the COVID-emergency of 2020, fiscal policy is being used by European governments to lessen the pain. Today, the effort seeks to shield households and businesses from the full impact of the energy crisis. • Corporate profits have held up well in the U.S., but the coming slowdown is expected to pressure margins lower. • We expect further volatility across asset classes. We would not rule out another relief rally in the equity markets, given the extent of bearish sentiment currently prevailing and an oversold condition that matches what was seen in mid-June. • Equity prices are already anticipating an earnings hit, with large-cap U.S. stocks down some 20% in the year-to-date. Although further stock-price weakness and volatility probably lies ahead, it is possible that the worst of the damage to risk assets has already occurred. The bad news • A global recession is appearing on the horizon, with Europe and the United Kingdom more vulnerable to a downturn than the United States in the months immediately ahead. • Central bankers are forced by their mandates to lean hard against the rising trend in prices, although they are essentially working at cross purposes against their own governments' stimulus efforts. • The United Kingdom has been especially aggressive in its tax-reduction and spending proposals; it is paying the price in the form of extreme interest-rate volatility and a decline in sterling to record-lows against the U.S. dollar. • Short-term gyrations notwithstanding, the primary trend in risk assets still appears to be a negative one. The U.S. Federal Reserve may still be underestimating the extent to which it needs to raise its policy interest rate in order to slow the economy and produce sufficient slack in the labor markets to bring inflation back to target.