The third Monday of January, known as “Blue Monday”, is often regarded as the saddest day of the year. A combination of gloomy weather, Christmas credit card bills and waning New Year’s resolutions combine to leave people feeling low. One must wonder whether Boris Johnson experienced his own “Blue Monday” a little early this year, as he stood up in the House of Commons this week and admitted to attending the Downing Street party meeting on 20th May 2020. Pressure on the Prime Minister has increased dramatically and there is a genuine feeling that these alleged breaches of lockdown rules could topple him. This morning there have been further claims regarding two leaving parties held at 10 Downing Street on the eve of the Duke of Edinburgh’s funeral in April 2021.
With the political turmoil dominating UK tabloids, you will have likely missed the more positive news that the UK economy surpassed pre-COVID levels in November on the back of stronger growth data. There was also consensus beating construction, industrial and manufacturing data released on Friday and helped insulate the UK market from some of the volatility being witnessed in asset markets currently.
Comments from two US Fed Committee members this week provided mixed signals to markets. First, we had Fed Chair Jerome Powell speak on Tuesday, and his dovish language led to a sharp rebound in global equity markets. However, Lain Brainard stated on Thursday that fighting inflation was the Fed’s “most important task”. These comments, alongside inflation data coming in at 7% on Wednesday, led to another sell-off in equities. The areas of the market which continue to be hit hardest are the higher valued and speculative growth companies, many of which have experienced exceptional share price performance over the last few years. Tesla and Netflix fell 6.75% and 3.35% respectively on Thursday, dragging down US equity bourses.
At a country level the UK market, having lagged US and European counterparts since 2016 has bucked the trend and had a strong relative start to 2022. The UK has meaningful exposure to sectors such as banks, energy and mining which tend to perform well in inflationary environments. High-growth areas such as information technology make up only a small part of the UK market, whereas they represent close to a third of the US S&P 500 benchmark.
Commodity prices have been strong so far in 2022 and this week saw gold and oil push higher. They benefitted from a combination of inflationary pressures and a weaker US dollar, both of which typically support commodities.
In what was a busy week for news flow, there were geopolitical issues for investors to contend with as well. Concerns over a Russia-Ukraine war have escalated, and talks appear to have done little to help with Russian officials rejecting Western efforts to ease tensions.
Later today US Q4 earnings season will kick-off in earnest and will allow investors to focus on company fundamentals once more. Despite what has been a difficult 14 days for equity markets, there is consensus that the global economy will continue to grow and aggregate company earnings will also grow, which should support share prices. Over the short-term, there can be any number of factors that influence the daily moves in a company’s value, but if we take a longer-term time frame, fundamentals, such as a company’s earnings typically play a significant role in share price performance.
As always, we believe the best way to avoid feeling “blue” about markets is to take a long-term approach coupled with asset class diversification. In doing so you can even flip the mood on its head and see the recent asset market pullbacks as more attractive buying opportunities.
Andy Triggs | Head of Investments, Raymond James, Barbican
With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.