The prospect of slower economic expansion alongside persistent inflation and central banks tightening is leading to a febrile mood in financial markets.

  • Stocks have erased much of their March rebound and are down 11% year-to-date (in euro).
  • As bond yields are coming off almost a decade of contraction driven by historically benign inflation and central bank buying, government and corporate debt has posted the worst negative return on a yearly base in data stretching back to 1990 (-12% year-to-date)! 
  • Commodities remain the best performing asset class (+35% in 2022 and +36% in 2021) as they offer, like some parts of the stock market, a better hedge against the first inflation regime since the early 1990s.

In a context where volatility remains relatively high and worries abound, investors are looking at companies, sectors, and styles that can still do well.

  • If inflation continues to be one of those worries, commodities and commodity companies should continue their run higher.
  • As the signs of a flight to quality due to growth concerns are clearly visible in a strengthening dollar, that may push money managers to adopt a more defensive stance. They are expected to favor companies with more stability and more predictability in earnings. Those include low duration stocks, such as value stocks (mainly Energy and Financials) which perform better than growth stocks (+19% year-to-date, in euro) during rising inflation expectations and higher interest rates. And also more “defensive” companies (such as Utilities or Healthcare) which, thanks to their lower sensitivity to economic conditions, pricing power, high dividend income or low volatility, have outperformed more cyclical stocks by almost 17% (in euro) since the beginning of the year.


Investors looking to protect themselves against more market turmoil should also think about buying bonds as their yields are now around 2.7%, compared with the MSCI World All Countries index average dividend yield of about 2.1%. The current gap between the two yields, of about 0.6%, is the widest since 2011! In the US, where the rate hike is the strongest, the gap (2%) is even wider!