Market Update – July 2022

The first six months of 2022 saw very poor returns across most asset classes, but there was a change of tack in July with positive returns for most major global equity markets. Nevertheless, the spectres of inflation and recession are still key concerns, and it remains to be seen how the rest of 2022 will pan out.

Although it looks like most major economies are either in or heading towards recession, when the European Central Bank met on 21^st July they felt the need to increase the benchmark deposit rate by 0.5%, following the general trend set by other major central banks. This was a bigger increase than had been anticipated by the markets, and clearly a sign of a need to act in order to curb inflation in the Eurozone, even if this will exacerbate the problem of stagnant economic growth. ECB President Christine Lagarde commented that “we expect inflation to remain undesirably high…”, and the bank’s press release made clear that rate decisions will be made on a case-by-case basis and that further hikes “will be appropriate”.

Although it remains to be seen what the coming months hold, markets suggest that inflation may be at, or close to, the point at which it will peak. Interest rates are still expected to increase in the coming months, but, should these expectations turn out to be correct, then it is anticipated that it might then be possible for central banks to reduce rates again in the first half of 2023. This would hopefully have the effect of stimulating economic growth, helping to get the global economy moving again. However, with a lack of clear data on what exactly is causing inflation, this cannot be taken for granted.

What can investors do to navigate these difficult times? Our advice remains the same: investors should continue to take a long-term view, and not focus on the short-term machinations of the economy or the stock market.

We understand that clients are incredibly focused on market fluctuations given the current climate, and as a result one of the providers in the investment world, Brooks Macdonald, has offered their support to our clients via an upcoming webinar to discuss recent market activity in more depth. Keep an eye out for invitations to this event that will be circulated later this quarter.