2022 has got off to a very bumpy start. Many markets that were strong at the end of 2021 have done a swift u-turn in early 2022, seeing the biggest winners of 2021 suffering the greatest losses over the past couple of weeks. For example, the US tech focused index, the Nasdaq 100 finished the quarter ahead of other international markets with a very strong return of 10.78%, however since the beginning of 2022 to the 1st February, the Nasdaq finds itself at the bottom of the pack, showing a loss of 7.69% in the first month.
Mashud Rahman from Francis Clark Financial Planning sheds some light on the recent events seen in global markets and provides clarity on our macro-economic outlook.
What has caused the market upset?
Global stock markets continue to be concerned with developments we see in the Federal Reserve (Fed) tightening policy through raising interest rates. This heightened caution pushed global stock markets into a frenzy on 24th January 2022. US markets took a dive, with the main market – S&P 500 dropping more than 10% before rebounding, and with some indices finishing the day in positive territory. Such movements are indicative of the increased volatility we are currently witnessing in markets, but also give a stark reminder to remain calm during these times of volatility. The worst thing a long-term investor could do in these situations is to panic sell at the lows and then panic buy after a bounce-back.
Recent news surrounding the rising tension between Russia and the Ukraine has also had an impact. The current situation is very fast moving with ongoing discussions continuing to take place. Whilst Russia’s annexation of Ukraine’s Crimean peninsula in 2014 brought some volatility to markets, it was far from a global sell off. Despite the rhetoric around the situation being quite aggressive, we highly doubt the Kremlin are seeking to engage in conflict, especially when considering the strong counterpoints made by Europe and the US.
So far, the extreme movements in the recent sell off have come from the riskiest part of markets, particularly within the ‘speculative’ style companies which have done extremely well over the past couple of years – typically US based tech companies. Seeing volatility in these areas is not unexpected, and all portfolios recommended by Francis Clark Financial Planning adopt a multi-asset, geographically diverse strategy which will be far less deeply impacted by market volatility compared to a non-diverse, concentrated approach.
It may seem difficult to remain calm in uncertain times, especially with the looming threat of an equity market correction. This is not helped by continuous headlines from the media bringing further attention to the potential issues at hand. Market corrections (drops of 10% or more) are entirely normal. The S&P 500 has experienced 12 corrections in the past 22 years. Of these, seven were more than 15%, three more than 25% and just one greater than 47%. Despite this, the index has climbed over 415% in this period.
The key to battling corrections has always been to adopt a geographically diverse portfolio spread across a range of assets with a focus on high quality investments. At Francis Clark Financial Planning we continue to work closely with some of the most reputable names within investment management to make sure our clients’ investments remain well positioned to weather upcoming market conditions.
If you would like to talk to one of our team about how to optimise and safeguard your investment portfolio, please speak to your local financial planner or email [email protected].