Financial Markets Update

I would like to take this opportunity to update you on the latest economic developments and how financial markets are looking as we head into the summer months.

Consumers across the world are beginning to feel the pinch as significant inflation is reducing real wages and living standards and this has led to significant cuts to growth forecasts, to the point where some have suggested that a recession is more likely than not.

The sharp rise in inflation, and Central Banks’ expectation that it could remain elevated well into next year, has caused a significant shift in financial markets.

Where equities are concerned there has been a definite rotation out of the high-growth, mainly technology companies, which have forced stock markets higher over the last 5 years and into the kinds of companies which have previously performed poorly (often referred to as ‘value’ stocks).

As part of this trend the UK stock market has significantly outperformed the US stock indices (year to date the FTSE 100 has actually produced a positive return compared to  -17% for the S&P 500).

The movement in bond markets has arguably been more dramatic as the 10 year US Treasury Yield has now almost doubled since the start of the year and has touched 3% for the first time since 2018.

All of these factors have combined to create an uncertain backdrop and it is no surprise that stock markets have exhibited short-lived rallies followed by sharp drops (often a sign that investors are nervous and uncertain).

Whilst we appreciate that it can be disconcerting to hear worrying news reports and to witness volatility within financial markets, we continue to believe that the best course of action is to remain invested, diversified across regions and asset classes.

We hope you find this update useful but should you have any queries on this, or any other matter, please do not hesitate to contact us.
Statement issued on 19/05/2022 by:
Nigel Foster, DipPFS