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In his latest blog article, CIO Guy Wagner summarises the short-term and medium-term factors impacting the current financial markets.

Short-term factors

  • Central banks have made the fight against inflation their primary objective. However, monetary tightening policies are not able to improve the situation on the supply side. Therefore, the only way to reduce inflation is to reduce demand.
  • The rise in interest rates will thus have an impact on the economy, which is likely to slow down, while inflation will gradually decline. Inflationary fears will progressively give way to fears of recession.
  • A reversal in the Federal Reserve's monetary policy, similar to what happened in 2018, is not yet on the agenda. Such a reversal, at a time when inflation remains high, would completely destroy the credibility of the US central bank. For the US central bank to change its stance, one or more of the following factors would have to occur:
    • A much more visible slowdown in US economic growth;
    • A decline in inflation for several months in a row;
    • A further fall in stock prices;
    • The occurrence of one or more major accidents in the markets (bankruptcy, etc.)
  • In the short term, the markets will therefore remain under pressure. The more since:
    • The current market decline must be put into perspective. At the current level (3,924), the S&P 500 index remains some 4.5% above its level from the beginning of 2021 and 16% above its level before the health crisis. In essence, the market has 'only' lost the gains of the last twelve months (although it should be noted that behind the 'good' resilience of the indices there is often significant damage);
    • Valuation multiples and company profit margins remain high.

Medium-term factors

  • The rise in US bond yields is starting to lose steam.
  • Monetary tightening in the US will ultimately be less aggressive than what the Federal Reserve is currently suggesting and what the market is anticipating.
  • Quality companies will regain favour with investors. Their valuation multiples have become more reasonable and they are better positioned to protect their profit margins.
  • The dollar's rise is coming to an end.
  • Valuation multiples in Asian markets are generally attractive. The strong undervaluation of the yen is an additional argument in favour of the Japanese market.
  • The outlook for gold remains favorable in the medium to long term.


This document is issued by BLI - Banque de Luxembourg Investments (“BLI”), with the greatest of care and to the best of its knowledge and belief.

The views and opinions published in this publication are those of the authors and shall not be binding on BLI.

Financial and economic information published in this publication are communicated for information purposes only based on information known on the date of publication. Such information does not constitute investment advice, recommendation or encouragement to invest, nor shall it be interpreted as legal or tax advice. Any information should be used with the greatest caution. BLI does not give any guarantee as to the accuracy, reliability, recency or completeness of this information. BLI’s liability cannot be invoked as a result of this information or as a result of decisions that a person, whether or not a client of BLI, may take based thereon; such persons retain control over their own decisions. Interested persons must ensure that they understand the risks involved in their investment decisions and should refrain from investing until they have carefully considered, in conjunction with their own professional advisors, the appropriateness of their investments to their specific financial situation, in particular with regard to legal, tax and accounting aspects. It is reiterated that the past performance of a financial instrument is no guarantee of future returns.



The author of this document is employed by BLI - Banque de Luxembourg Investments, a management company licensed by the Commission de Surveillance du Secteur Financier Luxembourg (CSSF).

Guy Wagner, Chief Investment Officer

An economics graduate from the Université Libre de Bruxelles, Guy joined Banque de Luxembourg in 1986 where he was head of the Financial Analysis and Asset Management departments. He was appointed Chief Investment Officer of BLI - Banque de Luxembourg Investments in 2005.

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