Equities outlook: Inflation tapering narrative becoming stronger

Equities outlook: Inflation tapering narrative becoming stronger

Inflation likely to be transitory, but tapering narrative will stay for some time
The narrative of economic recovery is increasingly being challenged by the risk of central banks tapering asset purchases. Recent monthly US core CPI and core PCE readings were their highest since the early 1990s and well above the Federal Reserve’s target rate. The concern is that the Fed will reduce liquidity support sooner than expected.

The spike in inflation is likely to be transitory given the low base set during the lockdowns last year and as economies gradually normalise, but this is not to say that inflation cannot become more persistent later on. It’s important to track economic data points including non-farm payrolls, jobless claims, PMIs, inflation and yields, and all these feed into the other great tension at the moment in equity markets between cyclicals and growth stocks. 

Broadly speaking, prints that confirm a hotter economy support cyclicals while undershoots support growth stocks. Central bank communications will also have to tread carefully to avoid spooking the markets. In addition, a global corporate tax floor, agreed in principle by G7 members, will disproportionately affect multinational growth companies.

Equity markets look ahead, and they are currently watching early 2022 when tapering is expected to start. If central bankers can get equity traders accustomed to the idea, there could be a relatively benign effect from a reduction in monetary support, but it’s a difficult balance. Stock pickers can protect themselves with companies that have the pricing power to withstand higher costs.

Download the report

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. The Target Market Determination (TMD) for Fidelity Australian product(s) can be found at www.Fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise.

© 2022 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.


Ready to invest in the Fidelity Global Equities Fund?

Discover now

Want more insights like this?

Get our free, monthly e-newsletter bringing you valuable insights, opinion and education.