In our latest market update, Niche Ops Director, Aled Phillips, discusses yesterdays market falls - and whether or not it is something to be concerned about in the short and long term.
You may have seen about market falls in the news this week, and with that in mind, my update today is once again here to provide some reassurance. Indeed, the reason I pen these updates is to tell you a bit more about what is behind these movements and to convey that quite simply, the best course of action is to ignore the “noise” in markets and to think long term (decades not days).
Last week saw inflation data in the US (CPI) at far higher levels than expected. This goes in tandem with news that the Federal Reserve may be forced to raise interest rates far higher than originally expected and therefore force the US economy into recession. The fears are not unfounded, but the market moves need to be placed in the context of what we’ve already witnessed this year.
Every major equity market is now trading at lower valuations than they were at in January 2020, before COVID, and it could be argued that we need to see a slowdown in demand for inflationary pressures to ease in the second half of the year. There is increasing evidence that this is now happening and, for now, employment data remains tight. If this path continues, then we should start to reap the benefits in financial markets in the second half of the year. Meanwhile, we have witnessed a different – stimulus focused - stance from China, which should provide more stability for growth going forward. In the context of moves, some of China’s more well-known names such as Alibaba and Tencent have already corrected 60%.
Financial markets are very anticipatory, but they can’t see around every corner. The correction has however priced in a lot of bad news. We would expect to see further volatility for the time being as markets resettle and there is more certainty around the risk of recession and increase in rates. It’s important to remember we have factored movements like this into the assumptions used in your financial plans.
As ever, we are keeping close contact with investment managers so that we can keep you informed, and if you have any questions, please don’t hesitate to contact us.
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The contents of this article do not constitute financial advice in any way; if you have any concerns about your finances you should talk to your financial adviser. The value of your investments can go down as well as up.