Written by Richard Warne.
Equity and bond markets were generally in negative territory last week, with most bond indices declining around -1.0% and the global equity market, MSCI All Country World Index retracted -0.7% in Sterling terms. The shining light for the week was the performance of UK equities with the FTSE All Share Index +1.5%, a positive for us with an overweight to the UK equity market. The return of the UK market is indicative of the variation we have seen this year between value and growth, with the UK market being “old economy”, a beneficiary of the shift in expectations of rising rates and inflation, with its high exposure to mining, energy, and financials.
The shift in market sentiment emphasised the old economy and new economy deviation. While the UK market enjoyed a positive week, the Nasdaq 100 in the US, which has a significant allocation to technology, declined -2.8% in Sterling terms. The first quarter earnings season will soon be upon us, which may provide a guide to where markets are going. It will be important in helping to answer the question everyone wants to know – “are the global economy and markets strong enough to endure a monetary tightening cycle”?
The environment continues to remain confusing. Many of the macro-overhangs continue to weigh on markets, while the war in Ukraine sadly drags on with little visibility of a resolution. China is balancing how it contains recent COVID-19 outbreaks without damaging an already sluggish economy, while in the US the Fed is signalling an accelerated timeline for quantitative easing. In France, the resurgence of the far right could signal further political uncertainty in Europe. All good reasons why, as investors, it is important to stick to your investment journey and not be swayed by the uncertainty.