Weekly Market Update- Week Ending 02/12/2022

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It was a positive week for investment markets as new data in Europe and the US provided hope that inflation may now be trending lower. Also adding to improved investor sentiment, Fed Chairman Jerome Powell confirmed on Wednesday that smaller interest rate rises are likely required going forward. He did, however, warn investors that monetary policy will remain in tightening mode until officials are confident in achieving their objective of bringing inflation towards their 2% target. “Despite some promising developments, we have a long way to go in restoring price stability,” Powell said.

November in general was fruitful for equity investors with the S&P 500 and Dow gaining 5.4% and 5.7% respectively. After a difficult September, this marked the second consecutive positive month for the first time since August 2021. Closer to home, the FTSE 100 index was even stronger, gaining 6.7%, its best month since November 2020. The more domestically-focused FTSE 250 was marginally stronger, registering a rise of 7.1% over the same period.

As interest rates have increased in recent months, combined with rising household bills, affordability in the residential property sector has come under heavy pressure. On Thursday, against this tough backdrop, the Nationwide building society revealed that the average house price declined 1.4% from October, the biggest monthly fall in more than two years.

On the face of it, falling prices would be welcomed by first-time buyers (and those trading up) but with a cost of living crisis, the ability to save for that vital deposit looks very challenging. The average house price now stands at £263,788, down from £268,282 in October and a peak of £273,751 in August. Despite the falls, prices still sit significantly above the levels (roughly £220k) seen when the pandemic started in early 2020. With the effects of the mini-budget fiasco still filtering down, this trend of falling house prices is expected to continue in the months ahead.

John Naylor, Chartered FCSI – Head of Investment Committee
John Naylor