The pandemic era ushered in historic changes. The legacy of the pandemic and response will surely be with us for years to come.

The global economy should expand this year as vaccinations continue. We expect growth to remain positive in 2022 but moderate into 2023 as accommodative policies wind down.

Profits grew along with the economy, propelling stock valuations to near records. While valuations and profits have been a tailwind, normalizing these factors suggests a headwind could emerge for stocks. Still, we expect stocks to outperform low-yielding Treasury bonds over time. Inflation may have been the biggest surprise in 2021 as the inflation rate surged to levels not seen since the early 1980s. Responding to inflation, we expect the Federal Reserve (Fed) to raise short-term interest rates and end bond purchases soon.

We see signs of growth as we start the new year, a positive for equity markets. Given changing conditions and lower return expectations, we think a tactical discipline remains a sensible way to invest as we start 2022.