Market outlook – 15th September 2022

After a heavy sell off in June, stockmarkets recovered strongly in July and early August only to see this rally go into reverse towards the end of August and through September to the present date.

Perversely, the reason for the stockmarket falls of recent weeks is not due to pending recession fears (although those are very real) but, to the contrary, due to the strength of the US economy with strong demand and a tight labour market driving core inflation higher: this sets the scene for the US Federal Reserve to keep increasing interest rates until inflation is under control. It is higher interest rates and the knock on implications on the cost of borrowing, affecting both businesses and consumers, that are feared by institutional investors more than anything else.

We therefore see a continuation of the theme that has dominated stockmarkets since the turn of the year, which is the uncertainty as to how much higher interest rates might need to rise to ‘tame’ inflation and whether interest rates will have to go so high that they will cause a severe recession, or only high enough that they just cause a shallow technical recession. 

Understandably, the UK press focusses on the problems facing the UK economy but the reality for UK investors is that the US economy is the one to watch: if the US economy continues to ‘run hot’, continuing to stoke inflation, we can expect to see the high levels of stockmarket volatility experienced over the year to date continue for the foreseeable future.

This article is issued by Portland Financial Management Limited which is regulated by the Financial Conduct Authority. Nothing in this article should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This article may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.