What You Need to Know

Developed-market equities had strong returns in 2021, despite a choppy fourth quarter. Bond markets were challenged by the growing inflation headwinds. And several COVID-19 variants—especially delta and omicron—created continued concerns over re-establishing some sense of normalcy to global economies and markets. Our global GDP forecast for 2022 expects robust growth early in the year, but likely to decelerate as tighter fiscal and monetary policies hinder that growth later in the year. And our global GDP forecast for 2023 is a more subdued 3.0%, which matches the precrisis trend.

Latest US Core Inflation
25-Yr. Avg: 2.1%

US 2021 Large Cap Returns
11.0% 4Q Return

Global GDP
2022 Forecast

By mid-year 2021, the global economy—especially in the US—was getting back on its feet, with re-openings and earnings strength. But that surge kindled a strong rise in inflation after several dormant decades. While the services component of CPI has remained quiet, bottlenecks in the supply chain of goods strongly increased the heat of inflation, which has now continued longer than many anticipated. Lower consumer sentiment and higher inflation expectations troubled the fourth quarter. This pushed the Fed to accelerate its timeline for ending quantitative easing and most likely commencing interest-rate increases.

In all economic scenarios, COVID-19 variants will play a central role in the speed and success of US and global growth for 2022. Inflation will remain elevated for the first part of the year but will likely cool off in the second half. If inflation falls more quickly than expected, central banks may not need to tighten very much. And economic headwinds could also be reduced if the world is able to tame the worst effects of the pandemic.

Equity investors may have concerns over high valuations. But stocks are a resilient asset class through many headwinds, including periods of rising inflation and Fed tightening. And there are more reasonable valuation opportunities beyond the top 10 US megacap companies that now account for a record 30% of the S&P 500. Whether seeking opportunities in value or growth stocks, quality is a key factor—not just in the US, but in global markets as well.

For bond investors, inflation and rising rates suggest that a blended credit portfolio offers a better income-to-risk profile today. Although yield and spreads are tight in developed-market corporate credit, relative opportunities still exist—notably in emerging-market debt and securitized assets. For US investors, municipal bonds weathered 2021 better than US Treasuries or investment-grade corporates. Munis tend to have less interest-rate sensitivity, and muni credit tends to do better when 10-year US Treasury yields rise.

But as with all parts of the capital markets, it’s important to be selective. In these volatile and uncertain markets, it’s important to be active as you position your portfolio to participate and defend.

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

Investment Products Offered: Are Not FDIC Insured | May Lose Value | Are Not Bank Guaranteed

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AllianceBernstein family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the manager of the funds.

AllianceBernstein® and the AB logo are registered trademarks and service marks used by permission of the owner, AllianceBernstein L.P.

© 2022 AllianceBernstein L.P.

Clients Only

The content you have selected is for clients only. If you are a client, please continue to log in. You will then be able to open and read this content.