Most of this year’s market turmoil has been caused by inflation numbers spiking well beyond the ranges that Governments and Central Banks are comfortable with. Most Central Banks state inflation of 2-3 per cent is their target range – however recent numbers have been pushing into the 7-8% range.
There is no doubt the inflation fires have been fanned by supply restrictions and events beyond market and government control. Things like the supply hangovers from Covid, the Russian invasion of Ukraine and China locking down its population (and businesses) hard in the pursuit of Covid zero. However, there is evidence of demand-side impacts flowing through with increased wage demands spurring further inflationary pressure.
One of the primary inflation-fighting weapons Reserve Banks have is to tighten monetary policy – typically by raising interest rates. They have begun doing so and flagged vastly higher rates than were previously thought only a few months ago.
One thing markets hate is uncertainty and they have reacted predictably to the fast change in policy. In particular, there are concerns that fighting inflation via higher interest rates will suppress economic growth, raising the likelihood of a recession in the next 1-2 yrs.
Most markets have been hit – from fixed interest to listed property and share markets. In fact, US share markets are in “Bear Market” territory – having fallen more than 20% from recent market highs. You can read more about that here.
While this may seem alarming this is nothing new for the share market as correctional phases or bear markets occur on average every 4 years. We can reflect on past events and the performance of the stock market to see that long term the market always recovers and trends higher growth.
You can access all our recent market updates here.
While we can’t be sure markets have dropped to their lowest, we can provide guidance on how to manage the current market volatility.
Whilst the temptation can be there to chop and change your investment approach. History tells us this is often the worst thing to do. Making wholesale changes to your investment strategy gives you two chances to get it wrong. When to get out and when to get in. Hope is not a strategy – hoping you get this right is akin to gambling. The best defence is to have a robust strategy and stick to it.
If you would like to have one of our Advisers review your investment strategies or discuss your investment plan and options, fill out the form below and we can arrange a complimentary initial consultation to see if we can help.
What you need to know
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