The fiscal and monetary response to the Covid-19 pandemic was unprecedented. While this extraordinary accommodation buoyed businesses and individuals as economic activity ground to a near-complete halt in many areas, it also promoted market distortions and areas of speculative excess that call to mind previous market bubbles.

Key Takeaways

  • Key-Takeaway

    The massive fiscal and monetary response to the onset of Covid-19 in early 2020 laid the groundwork for a surge in growth stocks and drove relative valuations between growth and value indexes to record levels.

  • Key-Takeaway

    Markets grew more nuanced going in 2021, with style leadership alternating between growth and value. Real interest rates appear to have been the primary driver of relative performance, with higher rates prompting a rotation into value-oriented stocks and sectors, and lower rates favoring growth.

  • Key-Takeaway

    Increased hawkishness among central banks in response to persistently elevated inflation has pushed nominal interest rates back to pre-pandemic levels. The resulting higher discount rates and other potential headwinds suggest richly valued areas of the market may represent unfavorable risk-reward tradeoffs going forward.

  • Key-Takeaway

    Though markets appear to have grown more complicated, particularly with Russia’s recent invasion of Ukraine, First Eagle remains focused on the construction of all-weather portfolios that seek to create resilient wealth and mitigate the permanent impairment of capital in the face of complexity and uncertainty.