Stagflation, reflation, soft landing or a slump --- what Wall Street expects in the second half of 2022 - MarketWatch

As the first half of 2022 draws to a close, Wall Street investment banks and their legions of strategists have been busy telling clients what they should expect in the second half of what has been an extraordinary year for markets as U.S.

and others have over the past week or two released their outlooks on what investors should expect in the second half of the year.

in the second half of the year looked unlikely — or at the very least, not in their base case.

The team at UBS divided their outlook into four scenarios: “stagflation,” “reflation,” “soft landing” or “slump,” and outlined what the reaction in stocks and bonds could look like in each case?

Their best case scenario for stocks would be either a “soft landing” or “reflation,” but in each case, investors would see inflation pressures moderate while the U.S.

Under the “stagflation” scenario, stubborn inflation and tepid growth would drive both stocks and bonds lower, essentially marking a continuation of the trading patterns seen so far this year, where both bonds and stocks have taken a beating.

Their worst case scenario for stocks would be the economic “slump,” which would likely involve a recession that’s severe enough to prompt a dramatic shift in expectations surrounding corporate profits.

However, in this scenario, the UBS team expects the growth shock would force the Federal Reserve to consider cutting interest rates more quickly.

One of the most vexing aspects of the year to date — at least, as far as individual investors are concerned — is the paucity of investment strategies producing positive returns.

But investors who ascribe to the rules of the 60/40 portfolio have been beset by losses in both their stock and bond portfolios.

We believe it is possible that rates will peak this year, as US GDP growth decelerates rapidly.

The biggest corporate bond exchange-traded funds ended the week higher, but with the large iShares iBoxx $ Investment Grade Corporate Bond ET.

still 16.9% lower on the year so far

was 15.7% lower on the year and the iShares iBoxx $ High Yield Corporate Bond ETF

investment-grade corporate bond funds and ETFs suffer largest weekly outflows of the year