3rd Quarter Market Update

I hope that this update finds you well and have had an enjoyable summer with Autumn now fully upon us. 

With Strictly Come Dancing and the Bake Off on our tv screens, as I say each year this starts the run into Christmas for me. 

What a few weeks we have seen in both the political and financial markets. It feels to me that we have had a year’s worth of events happen in only a matter of weeks. 

I have now written this update 5 times and even as I do this final draft, we see our current Prime Minster resign. 

Therefore, as you read this update think of this quote:

Formally stated, Newton’s third law is: For every action, there is an equal and opposite reaction.

The now infamous mini budget has really gone down like a lead balloon and with the majority of this reversed with Mr Hunt getting the job, for now. 

The markets have reacted quite well to this being reset and we did see the pound strength with the markets rally. 

While the political outlook remains unsettled this will continue to affect the home markets and until such time, we know who is next this will continue. 

Looking at the bigger picture the economy does not feel that we are in or approaching a recession. There remains a strong property market (for now), job security, record job openings, low unemployment, well capitalised banks, and people are spending. 

There is still some covid hang over with regards savings and the need to spend so this is masking some issues I feel on the high street. 

In the UK if the property market remains stable no matter what else seems to happen, we all feel quite happy. 

Using the carrot of a more generous stamp duty regime this is helping mask the increased cost of borrowing that we are now facing. 

Will we see yet more changes with a new Prime Minister and potentially chancellor this week? 

I really didn’t want to mention inflation and the cost of living as it still hits the headlines and has moved up to 10.1%. 

I heard a good analogy for this “inflation is like an oil tanker; you just don’t turn this around. It’s turns gradually and takes time”. 

With real inflation in mind, I am using the “broccoli barometer” as my guide. 

Before this year a standard head of broccoli was 49p in the local Aldi. This is now 65p, so a 33% increase well above the stated 10.1%. 

Inflation is very much down to what it is you are buying, and it can affect us all in different ways. 

Higher rates will not control inflation and only lower consumer demand will reduce prices as product does not sell. 

The oversupply is due to hit very soon as we see the cost of container shipping collapsing back to pre-covid levels. The great race to the bottom will commence once more. 

We are in the eye of the storm I am sad to say and there may well be bad news still to come. 

In 24 years in the industry now under my belt this month, these first 9 months of 2022 have without doubt been the most challenging by far. 

Looking toward global markets, the rate increases from the US Fed continues to keep the expected growth returns reduced in equites.  

The US are about 60% of the world economy so what happens there affects us all. 

Even the FTSE100 over the last quarter has suffered and this had been quite resilient up until then. This is mainly due to the over exposure to the commodity and “value” markets which had been stronger this year verses past years. 

For context, I have set out below the most popular market metrics to compare over the last 1 and 3 months to the end of September.

                                                           1 month               3 months 

FTSE100                                             -6.16%                  -2.72%

MSCI World                                       -4.13%                  4.23%

S&P500                                             -3.63%                  6.15%

0-35% Mixed Investment              -5.04%                  -3.54%

20-60% Mixed Investment            -5.50%                  -3.09%

40-85% Mixed Investment            -5.74%                  -1.91%

As you can see some positives over the 3 months for the MSCI World and S&P500, but both are still down double digits for YTD. 

Interestingly even gold is down -9.8% YTD and in volatile times like these, gold should be seeing a stable positive return.  

Prediction and calling the markets is near on impossible and with the war in Ukraine rumbling on, energy prices remaining high and rate hikes continuing it’s even harder.

Saying that we are now seeing wholesale gas prices some 60% down from August so that’s a massive indication of what is come… I hope. 

This is a bold statement but there is also a good chance that this time next year we will be talking about low interest rates, deflation and looking at ways of simulating the economy once more. 

The spike in savings rates is a welcome new world for us savers who have been waiting for this since 2007. There are currently some 4.75% (plus) fixed rates for 2 years on the market with the prospect these could be higher once we see another rate increase in November.  

Now is the time to be working those cash savings accounts as hard as you can. Please just ensure that any provider you are looking to use is registered with the FSCS protection scheme. A reminder this is:

up to £85,000 per eligible person, per bank, building society or credit union

up to £170,000 for joint accounts

Mortgage rates have now tipped over 6% with longer term fixed rates looking a little cheaper. The run of cheap money is drying up so it seems and as per my comments on stamp duty, this will affect the property market as borrowers start to realise that credit is not free. 

All in all, for any investor right now, the view remains the same, stay invested, ride out the market trouble and prepare for the recovery that is coming. 

When this is, is hard to predict, but it will come as they always do, following any market turmoil. 

History tells us this and looking back just over the last 24 years we can see that after every event comes a recovery, some are just a little slower than others. 

Please feel free to get in touch if you require any additional help and support at any time, we would be most happy to assist you in any way that we can.