The ongoing uncertainty surrounding inflation, the war in Ukraine, interest rates and the potential for recession has created a lot of uncertainty so far this year.
This uncertainty has caused real volatility in global stock markets. Indeed, the first of 2022 was one of the worst first half years for global markets in more than 50 years. However, amongst the doom and gloom (and after some better-than-expected figures on the economy and inflation), July brought about a strong recovery in global markets, with the stock markets globally up around 6% over the month. This recovery has continued to gather pace into the first half of August.
Months like July 2022 highlight the perils of one the key mistakes many people make when it comes to investing, trying to ‘time the market’. After a tough few months for global markets, and most of the media peddling their usual brand of constant impending doom, it wouldn’t be totally irrational to think ‘Now might not be a great time to be invested’ prior to the recent uplift.
However, those trying to time the market would have missed the benefit of the recent uplift. Sentiment can quickly change in financial markets and for a long-term investor, trying to second guess the way the tide will turn is a pointless and potentially costly endeavour. A well-diversified portfolio has withstood anything history has thrown at us and has always delivered long term returns, but those long-term returns have always lay at the other end of short-term volatility.
The war in Ukraine is significantly affecting fuel, energy, and food prices, which is continuing to place pressure on both households and businesses. With a further significant rise to the energy price cap coming in the autumn, many of households are facing a squeeze.
Inflation reached yet another 40-year high in the 12 months to July 2022. The rate of 10.1% is slightly higher than the 9.4% recorded the previous month.
Fears of a recession subsided slightly with the unexpected news that GDP in the UK grew by 0.5% in May 2022, after a decline of 0.2% in April.
Political issues also created some uncertainty in the UK, after Boris Johnson resigned as prime minister, kickstarting a Conservative leadership contest that will run until September 2022.
Overall, the UK FTSE All-Share grew by 5% in the month of July.
Ongoing food, energy, and fuel supply issues exacerbated by the war in Ukraine also impacted the eurozone economy in July.
In response, the European Central Bank (ECB) raised interest rates for the first time since 2011 to tackle eurozone inflation that has increased to 8.6%.
In a surprise move, the ECB raised its base rate by 0.5 percentage points, despite economists predicting a smaller 0.25-point rise.
European shares, as measured by the MSCI Europe ex-UK index, fell by 4.49% in the month of July 2022.
As in the UK, the US inflation rate soared to a 40-year high, reaching 9.1% in the year to June 2022. However, there was also signs that this was beginning to cool off.
Despite many pessimistic predictions, the US showed robust job growth in June, defying expectations of a slowdown and keeping the unemployment rate at just 3.6%. Meanwhile, retail spending, a key indicator of economic health, rose 1% in June – although some of that increase can be attributed to rising prices.
US shares have rebounded in July after a difficult few months. After falling into a bear market earlier this year, the S&P 500 index is currently up more than 8% from its 2022 low and, by the end of July, was trading at its highest level since early June.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.