Text on screen: PIMCO
Footer Overlay: PIMCO provides services only to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.
Text on screen: Tina Adatia, Fixed Income Strategist
Tina Adatia: PIMCO has just published its 2022 outlook titled Investing in a Fast Moving Cycle. Tiffany, there you talk about how there'll be more volatility and uncertainty in the economic outlook ahead. So to start off, Tiffany, can you give us an overview of what's changed and what we can expect in 2022?
Text on screen: Tiffany Wilding, Economist
Tiffany Wilding: I think the key points to underscore from the cyclical outlook are really that the developed market economies, including the United States,
FULL SCREEN GRAPHIC: Title – Cyclical Outlook: Investing in a fast moving cycle; A bar graph shows the phases of the business cycle in the shape of a wave, starting at the bottom with trough, and charting a multi-colored line up to early, mid, late, peak, and then recession.
have very quickly transitioned from an early cycle recovery to what we think we're currently in, which is a mid-cycle expansion. But I think more importantly, it looks like we're also rapidly progressing towards later cycle dynamics. Further complicating issues is that the fast pace of this recovery just coupled with a very
Images on screen: COVID-related images, Closed businesses,
volatile and uncertain nature of this virus has contributed to product and labor market frictions, which has elevated inflation. And of course the timing with which those issues will moderate is highly uncertain. That's created the potential for an unwanted jump and inflation expectations. So I think all of these factors necessitate a faster shift in policy from central banks away from the extraordinarily easy conditions that prevailed in 2020 and 2021.
Tina Adatia: Okay. So Marc, turning to you. What does that actually mean for markets and what are some of the key economic indicators that you are watching for that could signal a turn in that cycle?
Text on screen: Marc P. Seidner, CIO Non-traditional Strategies
Marc Seidner: Typically as we evolve from early stage to mid cycle and to late stage of an economic cycle, that does portend a heightened degree of macroeconomic and fundamental volatility. And in those environments, that naturally translates to a higher degree of financial market volatility. So with regard to investment implications of our cyclical outlook, the highest level should be that investors should expect increasing uncertainty and increasing volatility in financial markets,
Images on screen: NYSE, Global central banks, Global financial markets
You combine that in an environment where because of low interest rates, the need for yield, the search for income and central bank asset purchase programs. We find ourselves an environment of rather unattractive valuations across most of the assets that we look at.
So increasing volatility, increasing uncertainty, rich valuations to us is an environment that warrants particular caution on behalf of investors. It's certainly the approach that we're taking as we manage PIMCO portfolios on behalf of our clients.
FULL PAGE BULLETED LIST: TITLE – PIMCO’s portfolio construction approach: LIST – Reducing overall risk, Being global, Remaining flexible, Nimble portfolio construction, Maintaining liquidity
And increasing caution to us means reducing overall risk in portfolios, being global in our nature, being very flexible, very nimble in our portfolio construction, and very, very importantly, maintaining adequate and ample liquidity to capitalize on opportunity. 2022 could be a year of increasing opportunity for investors and we want to make sure, and we would suggest to our clients that they maintain ample liquidity to capitalize on that opportunity.
Tina Adatia: So, what are those key things to watch over the next year?
Tiffany Wilding: I would really boil it down to three areas.
FULL SCREEN GRAPHIC: Title – Three important developments impacting the outlook for 2022; Three line graphs follow: the first, titled New Virus Variants, shows the global seven day average of daily case per 1 million; the second chart, titled inflation broader, more persistent, shows core CPI process in developing markets vs. pre-pandemic trends; and the third chart, titled more hawkish central banks, shows the fed funds rate (realized and futures).
The first is just the virus itself and I think that this latest wave of new cases associated with the Omicron variant is really a good reminder of just how volatile and how uncertain the path of this virus is. And although we do see that some of the economic effects of new waves of new cases are diminishing. Again, it just creates a lot of uncertainty on the path of economic activity. The second risk that we would just highlight is that just inflation remains persistently elevated and we've seen inflation broaden out over the last six months or so relative to what we were expecting. It's certainly always possible that that remains elevated for various reasons.
And then the third risk that I would just highlight is just that financial conditions remain extraordinarily easy as a result of the both fiscal and monetary policies that we've seen to date. And it's possible as we go through this transition and withdrawal policy that you could just see a more abrupt adjustment in financial conditions, of course, higher market volatility, as we've already alluded to, and that can ultimately slow down the recovery by more than expected.
Text on screen: For more insights and information, visit pimco.com
Text on screen: PIMCO
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission.| PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2022, PIMCO.