What can we expect in the coming months?

Mark Reidford APFS, Founder and Managing Director

Mark Reidford APFS, Founder and Managing Director

Over the last few months, we will have all seen the tough economic headlines and as a result we will have witnessed the impact of stock market volatility on our pensions and investments; it has been a tricky 2022 so far.

It is natural to feel nervous or worried when national or global events have a direct influence on our wealth. However, market volatility is part and parcel of investing and this period was very much anticipated. For regular readers of my blogs you will remember within our June 2021 newsletter I stated; “the next 12 to 24 months are going to be fascinating to watch unfold and we fully expect a bumpy ride”.

Twelve months ago we recognised money printing and lockdown savings were combining with pent-up demand, requiring consumers to pay more for goods and services. In addition, many companies also needed to restock but supply had been constrained in areas, triggering price spikes as economies re-opened.

At the time of writing in June 2021 there was clear evidence that inflation was rising and the key questions for investors was whether inflation would be transitory or structural and what action was necessary to deal with it?

Any debate around whether inflation is structural or transitory seems to have disappeared: The war in Ukraine was the turning point in terms of embedding inflation expectations and the debate has now been parked. Aside from the dreadful human suffering, the invasion has created significant shock waves throughout global markets and unleashed commodity price chaos pushing up the price of raw materials produced by the two countries. From crude oil to wheat and from nickel to neon, costs have spiked and stayed highly volatile as supply worries continue creating more inflationary pressures.

Central Banks have an unenviable task similar to trying to “nail jelly”.

Central Banks have an unenviable task similar to trying to “nail jelly”. At the start of May 2022, the Bank of England found itself in the unusual position of raising interest rates to dampen down the economy whilst at the same time warning of a recession later this year.

Clearly the Bank of England governor Andrew Bailey was preparing us for difficult times ahead (‘a bumpy ride’) when he recently told a Treasury Select Committee that the current environment “is the biggest test of the monetary policy framework that we have had in 25 years”.

We see several issues that could cause problems on the economic road ahead. Not least among these are rising prices, geopolitical uncertainty, market volatility, business confidence fragility, together with supply chain worries and a policy tightrope walk for central banks.

When building our client’s individual financial plan, we factor in all sorts of unknown variables. These will include periods of investment uncertainty, inflation and, of course, changes to your own circumstances.

If your long-term goals haven’t changed since the start of the year, it is unlikely your plan will need to change either.

Your goals might be 5,10, 20 or even 30 years in the future, so the performance of stock markets in 2022 is, in the overall scheme of things, not going to make an enormous difference to you meeting your financial goals.

Remember: your plan already assumes that there will be tricky periods in the markets!

Remember: your plan already assumes that there will be tricky periods in the markets!

With all the doom and gloom I still see a number of positives i.e. employment data released in May 2022 showed that, for the first time since records began, there were more job vacancies than unemployed people in the UK.

UK house prices have continued to rise strongly throughout this year, increasing by 5.6% in the first six months and driven by elevated levels of demand. We are of the opinion that, while transactions and thus price growth will continue into 2022, it will be tempered by the exceptional growth we have seen this year – especially if interest rates continue to rise as expected. This will lead to a ‘soft landing’ rather than a dramatic price correction over a short period of time.

What we particularly like is the expectation that during 2022, the Midlands and the North of England will show the strongest price growth, mainly driven by their greater capacity for growth.

What we particularly like is the expectation that during 2022, the MIdlands and the North of England will show the strongest price growth, mainly driven by their greater capacity for growth.

Stock markets will have a lot of bad news to digest over the next few months and households have not yet felt the full force of inflation, nor have businesses. Market valuations have come down a long way, and we fully expect they still have further to go.

The positive we see here is the key support equities have in their favour is the cost of holding cash. While you may not “lose” money by keeping your wealth in cash savings, you are almost certainly eroding its value in real terms. In a high inflation world, it looks like the riskiest choice of all.

Given that cash has become more expensive than ever before because of the drag of inflation, we believe there will be money looking for a home. This may support markets even if the environment continues to look weak.

Finally, 30 plus years of investing tells me periods like the one we are currently experiencing provide good investment opportunities. Buying in a falling market can offer benefits when markets recover which, history tells us, they almost always do.

Remember what Warren Buffett says; “Be fearful when others are greedy, and greedy when others are fearful.”

It is times like these that confidence should be taken from the fact Innes Reid are here if you need to talk to gain reassurance that you are still on track or if you plans and goals need to be reviewed.

Always remember we are here to help

If you have any questions about the current uncertainty or you would like to review your Innes Reid portfolio, please do not hesitate to contact your adviser. If you have not worked with us before, come and see us to learn more about how we do things.

Call 01244 347 583 or email enquiries@innesreid.co.uk

This article is not personal advice. If you are unsure what is right for you, please seek personal financial advice.

Please note the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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