Global Market Overview – August 2022
2022 has been a frustrating year for investors. Where inflation and rates are heading have dominated the market’s attention so far. August was no exception to this.
The Jackson Hole Economic Symposium was the major talking point. This is essentially a big meet-up for macroeconomic heavy hitters from all around the world. A topic for discussion is chosen and central bankers, finance ministers, and high-profile economists share their thoughts on the issue. Markets closely follow the event and unexpected remarks can have the potential to significantly impact asset prices.
The title of this year’s symposium was “Reassessing Constraints on the Economy and Policy”. To the rest of us, this can be translated to “Inflation has become a problem for the first time in a long while, what the hell can we do to fix it?”.
Usually, people don’t take much interest in the event. After all, a bunch of economists pontificating doesn’t scream prime time television. This year, however, interest was high since inflation is genuinely impacting people’s lives and central bankers see it as their job to bring it under control.
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Jay Powell, who heads up the US Federal Reserve, took centre stage at this year’s symposium and his message was clear. He stated that the “overarching focus” of the fed is to bring inflation back to its 2% goal and that another “unusually large” increase in rates could be appropriate in upcoming meetings. Markets took note.
In July, equities had bounced at the prospect of rates coming back down in the future, so there was a lot for the market to digest here.
As one would expect, the dollar was up at the prospect of rising US rates. Globally, markets were flat to down over the month, with equities most sensitive to rates (growth stocks) taking a larger hit while those which benefit from rising rates (value stocks) holding up better. The S&P fell 4.2% over the month, with the Nasdaq sliding slightly more.
As well as dealing with the takeaways from Jackson Hole, European markets had to battle with the ongoing issues around Russian gas. This meant Europe stocks, excluding the UK, were down over 5% for the month.
Japan and emerging markets were the best performers over the month as these markets are more separated from developed market central banks.
Investors should try to focus on the fact that investing in the stock market over the long term, is a powerful tool to preserve the purchasing power of their wealth and on ensuring that they have an appropriate asset allocation for the level of risk with which they feel comfortable. A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.
With thanks to Seven Investment Management LLP for their views and market thoughts. RiverPeak Wealth Limited