Events in Eastern Europe over the last week have correctly dominated TV, radio, newspaper and online news. It also meant that almost all equity or bond investors made losses during February, many for the second consecutive month unless – like the U.K. equity market – there was high proportional exposure to commodity sector shares.
There is a famous quote by the legendary Belgian professional cyclist Eddy Merckx that he “raced from 1 February to 31 October every year, competed for everything”. Unfortunately for financial markets there is never a defined season, and, whilst 2021 ended positively, January 2022 will go down into the history books as being a little bit more difficult.
Whilst the application of many millions of booster jabs have given a strong protection against the Omicron variant, offering the hope of COVID normalisation, global financial markets have not had a positive first few weeks of 2022.
Athletes at the Olympic Winter Games will either taste the thrill of victory or the agony of defeat. The same can be said for investors, as the easy victories over the last two years will become more challenging and hard fought in the year ahead.
The key for writing any monthly report is not to do it too early, especially during the end of November which saw the word Omicron become much better known than just by followers of the Greek alphabet. Whilst progress against COVID-19 challenges have helped almost all developed market stock markets generate attractive returns year-todate, many indices fell during the second half of November following concerns about the new virus strain.
October was generally a positive month for global equity markets, helping to push many developed market indices to new 2021 highs. Whilst COVID-19 challenges remained material and new concerns about gas prices, petrol availability and general delivery concerns became more apparent during the month, so far the average third-quarter corporate earnings season number has been taken well. However, most fixed income markets have continued to struggle this year, even if many 10-year bond yields have not yet returned to levels seen earlier this year.
Less than eight months ago, Rishi Sunak presented a Budget that was anticipating the ending of the pandemic’s impact on the UK economy. He announced extensions and end dates for the furlough scheme, the self-employed income support scheme, reduced VAT for hospitality and the £20 a week uplift to Universal Credit. To finance some of that expenditure, the Chancellor also revealed a 6% increase in corporation tax, deferred until 2023.
As we sit atop our prosperous peak, admiring the views of the fastest economic growth since 1984, the best start to a bull market, and the record-breaking quarter of earnings growth, it’s wise to remember that not too long ago we began our uphill journey from the depths of the COVID-19 ravine. Often, the best views come after the hardest climbs. So now it’s time to catch our breath and peer over the horizon at what’s to come as we begin our descent from this peak. However, just as the summit of one mountain can become the base of another, the investment landscape goes on indefinitely, which makes adhering to a disciplined investment strategy of the utmost importance.
Hopefully you enjoyed a good summer break. August was another positive month for many financial markets, with one pan-European (including the U.K.) index achieving a seventh consecutive advance. Whilst 2021 started with material concerns about COVID-19 challenges, limited vaccination numbers and widespread lockdowns, progress has been made on all fronts. No doubt the late August news that seven further countries have been added to the U.K.’s green travel rules, will further boost hopes that a return to previous norms are closer.
For most investors focused on the U.K., Europe and/or the United States, July was far from an unattractive month in all but a minority of equity sectors. This pleasingly allowed a further building of year-to-date returns. Meanwhile bond market yields generally tightened further. Although fixed income markets remain on average dull performers in 2021, performance has improved in recent months.