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While we live, let us live

The human mind is extremely creative in finding new threats day in, day out. New mutations of the virus, geopolitical jitters, spiking inflation rates, and a crackdown on corporate profitability are just a few of the latest pain points on investors’ minds. They may keep us busy for quite a while, but we struggle to find a signal among all the noise.

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Key takeaways:

  • Returning to normality remains a noisy endeavour. Investors should remain resilient and ignore the noise. A more balanced approach to cyclical risks remains key.

  • The past winter was about ‘cyclicals or defensives’. This summer is about ‘cyclicals and defensives’. 

Consider, for instance, the latest G7 tax plans. First of all, the devil is in the details and the details are scarce so far. The only concrete takeaway from the latest release is that the ‘race to the bottom’ in corporate taxes has probably ended. For even the most luring jurisdictions are not that far away from the hard bottom as suggested over the weekend (see our number of the week). Second, as our equity strategists point out, corporate profitability over the past 70 years has been driven far more by the business cycle than by tax regimes.

A piece of advice
In terms of the business cycle, the news flow remains extremely distorted by special effects. Yet, overall, it also remains stubbornly strong compared to consensus expectations. So business is good – maybe even more than good, since the headlines suggest far more difficulties than there actually are. Maybe economists underestimate human resilience in the face of major crises. “While we live, let us live”, said Epicurus a long time ago, and it remains good advice for us all.

Conclusion for investors
Investors will keep struggling with this noisy ‘going back to normal’. We reiterate our view that the recovery is largely in the price of many assets. So instead of ‘cyclicals or defensives’, it is more about a balanced mix of both. 

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