Investment Markets. What just happened?

By Tegan Gladman, Financial Design Support with Anstee & Co.

What has just happened with the Investment Markets? Owning stocks and bonds within a diversified portfolio is a long-established investment strategy. Stocks and shares tend to provide a higher return than bonds over the longer term, however, they are riskier and can be very volatile. Bonds tend to provide a lower, but more predictable rate of return.

This graph below by the Financial Times gives a fascinating comparison of how bonds and stocks have performed together over the years between 1871 and 2022.

The Y axis is measuring the nominal performance of US bonds, whilst the X axis is measuring the nominal performance of US stocks each year.

As you can see, there are only 16 occasions when the US bonds produced a negative return and only three of those occasions corresponded with US stocks also producing a negative return. 2022 being one of them…

A couple of key years to consider:

• 1931 & 1937 – The Great Depression (1929-1939)
• 1941 – The Pearl Harbour attack resulting in the US joining World War 2
• 1987 – Black Monday marking the end of an extended bull run in equities
• 2008 – The Global Financial Crisis

A perfect storm for the Investment Markets?

Investment managers have repeatedly referred to 2022 as the “perfect storm”.  This storm began with a big sell-off in US growth stocks towards the end of December 2021.  It also became apparent that inflation was rising, and the Bank of England began periodically increasing interest rates to combat this. Russia’s invasion of Ukraine in February 2022 put further pressure on global markets for food, fuel, oil etc. China continued enforcing strict no Covid policies which resulted in manufacturing bottlenecks and supply constraints. This resulted in inflation in food, energy, and manufacturing markets.

This type of inflation is not driven by the growth of the economy and is therefore not welcomed by equities. The increased interest rates also caused the bond yields to rise and the actual price of bonds to fall. As you can see by the graph, this resulted in a poor performance of both equities and bonds in 2022.

How Anstee & Co. can help you with your investments.

If you are considering your financial options but are unsure about how they may impact your financial future, we can help. We at Anstee & Co. are Independent Financial Advisers which means that the financial advice we offer is unbiased.

The initial meeting is at our cost, so why not contact us today? A meeting can be arranged at a time and location that is convenient for you.

Our expertise covers all aspects of financial planning including pensions, investments, and mortgages.

If you have any thoughts on this article, “Investment Markets. What just happened?”, then we would love to hear from you.

Finally, the information contained in this article is for information purposes only and does not constitute financial advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).