The first half of the year has been a tough market environment for investors. Much of the tricky start can be attributed to soaring inflation and central banks belatedly tightening monetary policy across much of the developed world. In the emerging world, many central banks sensibly started raising interest rates in 2021. This has led equity markets to sell off and bond yields to rise. There are reasons for optimism, however, which we will come to.
Inflation has figured prominently in our various webinars and comments since early last year. After the global recession and worries about growth in 2020, in the first few months of 2021 inflation became one of our major concerns.
It has been a very difficult first half of the year for most investment markets (some worse than others), with the US S&P 500 Index down 17% and the tech heavy Nasdaq Index down more than 25% in US dollar terms. Stocks in Europe have also fallen sharply, and to a lesser extent, in Asia. Only the energy and resources-laden FTSE 100 has offered resistance, with returns close to 0%, albeit in sterling terms.
Many investors will be impacted by the lifetime allowance, so it’s worth understanding the impact it could have on your pension. You can also get a clear view of your potential tax charge and consider which strategy may be appropriate for you to mitigate its effects.
It’s not an overstatement to say it has been a challenging start to the year for investors. Surging inflation, interest rate hikes, slowing growth and the conflict in Ukraine all make it a difficult environment to invest and feel reassured. But it should encourage you to know we have the experience and expertise to help guide your investments through difficult times.
There has been much commentary recently about falling bond prices, especially around coverage of US Treasury bonds. But what does this mean for investors who hold bonds and even for those who are not invested in this asset class?
The world economy looks set to slow sharply this year, with technical recessions in the form of two successive negative quarters of growth likely in a host of countries, including the US, UK, and the major economies of western Europe such as Germany and France. Global growth could slow towards 3% (based on the International Monetary Fund’s measure), and while positive, growth rates on this measure of 3% are often low enough to be referred to as a global recession. This weakness will continue into 2023.
The Bank of England reaches the milestone of a quarter-century of independence in early May. After some initial benefits, it is hard to claim that the experience has been an unbridled success. There are strong reasons this milestone should trigger a fundamental rethink of the Bank’s remit and governance.
The big picture has not fundamentally changed recently. Latest developments reinforce existing market expectations of slowing global growth, elevated inflation and tighter monetary policies in most countries.
Russia’s invasion of Ukraine overshadowed all other issues during the quarter. Indicators of market volatility, which were already elevated, snapped higher as investors assessed the tragic humanitarian consequences as well as the wider economic implications for the European and global political order.
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