Global equity markets were lower this week. With the mood already sombre, when US inflation data surprised on the upside it prompted further selling of risk assets as concerns increased about the pace of possible interest-rate rises. Although US consumer prices fell from 8.5% to 8.3%, it was higher than expectations of 8.1% and remains at a four-decade high. This has led to speculation that the Fed tightening cycle could be yet steeper than current expectations.
At times like this when markets are weak, it is easy for investors to be unsettled and feel the need to “do something.” These actions may feel good in the short term but could well be at the detriment of their long-term financial goals. It is for exactly this reason we always recommend that clients’ immediate cash needs (1-2 years) are not included within investment portfolios.
News flow over the next few months is likely to be downbeat. There will, however, be a time (difficult to imagine now) when the dire headlines have faded, and the world starts to look bright again. As the old saying goes, “nobody rings a bell at the top or the bottom of a market”. It is likely the market will turn long before the economic picture becomes clear, with a new trend only evident in hindsight.
For the long-term investor, bouts of extreme market weakness can provide plenty of opportunities to add to quality companies at more attractive valuations. Having survived and thrived through several previous business cycles, it is unlikely that the future long-term (5-10 years) performance of these companies will be determined by the current environment.
For further advice on market trends, contact our investment management team on 01604 621 421.
John Naylor, Chartered FCSI – Head of Investment Committee