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Weekly comment: Markets Uncut

Date: 25 January 2022

Weekly podcast: Markets Uncut

This week’s host, Investment Manager Tim Horrocks discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter and Fund Research Analyst, Matt Ennion. Among the topics discussed – inflation, interest rates, Netflix, tech stocks as well as a discussion on how recent geo-political issues may affect markets.

This is a marketing communication and is not independent investment research. Financial Instruments referred to are not subject to a prohibition on dealing ahead of the dissemination marketing communications. Any reference to any securities or instruments is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned in it.

Market overview

Global equity markets sold off quite sharply last week as investors fretted about measures central banks may take to curb inflationary pressures. Front and centre of this is the US Federal Reserve, where expectations are that the bank will raise interest rates in March, the first of four expected rate rises in 2022. March will also see the ending of quantitative easing (the bond purchasing programme) and speculation is rife as to when the Fed will start to reduce its balance sheet, a further potential tightening measure. Ranged against this is the latest headline inflation number which shows CPI rising by 7% over the last year. Unquestionably interest rates will rise this year but if they go up too quickly, there is a danger that economic activity is impacted. Central banks have a delicate balancing act to follow.

The US market is down around 8% so far this year,  but that should be seen in the context of the stellar increases over the last two or three years. From the start of 2020 to the end of 2021, the US market rose by nearly 50%, even taking into account the substantial fall in March 2020. Take it back over the last three years and the equivalent rise was over 90%. Recently we have seen the growthier end of the market incur profit taking as bond yields have risen. Some companies which have benefited from the Covid lockdown have also seen their share prices sell-off as the market looks through the fast spreading Omicron variant to eventual relaxation of coronavirus restrictions. On the other side, energy companies have seen share prices rise with oil prices up around 12% so far this year. Bank shares have also benefited from the prospects of higher interest rates. Rotations between industrial sectors have been common over the last couple of years but most have been short-lived. It is too early to tell whether the latest sell-off in growth and rotation into value has longer legs. Much will depend on whether central bank actions succeed in reducing inflation expectations without damaging economic growth prospects.

Inflation Vs Interest Rates

Thursday 27 January | 11am (GMT)

Are you concerned about inflation on your portfolio? Join us on Thursday to hear from Richard Carter who will be talking all things Interest Rates and also will be taking your questions.

Register now
New horizons

Speakers

Tim Horrocks

Investment Manager
Richard Carter

Richard Carter

Head of Fixed Interest Research

Matt Ennion

Fund Research Analyst

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