A Financial Market Review on the Last 12 Months
Craig Skelton and resident Financial Adviser, Jamie Benn, take a look back at the last year in the markets.
What was happening this time last year, in September 2021?
The first thing we picked up was a warning to the market, where a big Chinese property developer called Evergrande was going to default on paying interest to bondholders. It felt very far from home at first – until we started to see the impacts of it here in the UK.
The company is only just starting to get back on its feet now. Evergrande has been bought out of its shareholdings in some of the major banks. The S&P 500 dropped over 4% in a month, which was the worst drop in over a year. The UK economy started to slow down and everybody started to look more at volatility and also how Brexit was affecting the country. It was one of the first moments that we saw a market dip globally for quite some time.
Volatility continued in October
October was the first time we started to see reports of a global shortage of natural gas supplies. It was something that we weren’t fully expecting. But financially it was countered by success in other parts of the market. The S&P 500, in contrast to the month before, had some of its best days.
The Bank of England started to warn us about a global rise in inflation that could start to slow the UK’s economic recovery. There was bad news, then good news, topped off by a little more bad news, and we were all just starting to realise that the next year was looking unclear from a financial point of view.
Markets rallied in November – then dipped in December
November was a big month, despite inflation being higher than it had been for a while. But then we started to hear about a new Coronavirus variant coming through, called Omicron.
It was a strange, up and down period where the market changed quicker than ever and the threat of Omicron spooked the markets. But unlike previous coronavirus variants, the market impact wasn’t quite as dramatic. People were starting to realise that we had to accept that Covid-19 was going to be part of our lives, but we need to start working through it.
By the end of the year, we were seeing some solid gains, and the start of interest rates being raised by the Bank of England. On the other side of the Atlantic, the US Federal Reserve decided to accelerate tapering of its bond buying programme. They reduced the amount they were buying a lot sooner than we were expecting. Again, that was another little flag to the market that the inflation rate globally was starting to increase.
Inflation worries in January
This more aggressive position from the US Federal Reserve caused markets to fall as the new year started. There were many flags, from every national government, that made it clear they were expecting a real spike in inflation. They were trying to control that wherever they could.
On top of that was the rising cost of living, and goings-on between Russia and Ukraine at the time were causing some real uncertainty in the market.
Then Mr Putin decided that it was the right time to invade Ukraine, which caused more turbulence in the financial markets. We can’t be sure whether that was the reason he made the move, or if it was the other way around.
Covid recovery in February and March
In February and March, despite what was going on with Ukraine and Russia, the markets recovered. We started to see a bounceback now that Covid-19 was not such a threat. Pent up savings, pent up worry, a war going on… people were going out and spending and it was a real boost to the economy in general. The market recovered quite dramatically.
Again, that was something else that pushed inflation rates up. In hindsight, we could see this inflation coming, but nobody could have predicted the size of it at the start. Looking back, we do wonder why rates changed more slowly than they could have. But we also had concerns at the time about recession – something they were trying to prevent us worrying about.
April – war in Ukraine
In April it was really accepted that Russia and Ukraine were at war. The market started to recover as China got involved, trying to do some mitigation. We saw more talks between Ukraine and Russia and there was hope of a positive outcome. But we also saw inflation rising and rising.
The International Monetary Fund started to cut its forecast for global economic growth, which led the stock market to fluctuate. A lot of investors were becoming concerned about plans to raise interest rates and slow down inflation. There was further talk of recession and increasing cost of living.
We’d now got to a point where it was quite evident that inflation would reach the highest rates we had seen in a long time. That isn’t something that everybody prepares for month to month. There was more fear of recession at that point, because of these increases and not knowing how far it could go.
Doom and gloom in May and June
By May, people were still worried about what inflation would mean and there was a lot of media coverage about the cost of living and its impact on our lives. There was a lot of gloom in the markets.
We started to combat inflation again. The Bank of England, European Central Banks, Federal Reserve… everybody was reviewing their interest rates at that time. The Federal Reserve and Bank of England did again make an increase in June. We were seeing interest rates rise and mortgage payments rising alongside them.
More consumer spending in July
Yet in July, there were still some positive things happening. Even though economies were slowing down, interest rate hikes weren’t as prominent that month. July was another ‘spend’ month, one of those post-Covid, ‘let’s do things’ times.
We perhaps saw a little less discretionary expenditure on items that wouldn’t retain value, but more spending on holidays and experiences which was reflected in the market.
Despite raising interest rates, again, by the Federal Reserve, European central banks to combat inflation, we didn’t see inflation slowing down during the month. So inflation was still going up, but the economy was starting to slow down.
Uncertainty in August
August was a strange time again, another ‘in-between’ month where people were recognising the turbulence of the previous 12 months, inflation rising, and had taken the chance to alter investments and bonds from a personal perspective.
But the cost of living was still rising and it was hard to see ahead. That was reflected in the market. Equities initially rose and central banks were trying to slow the pace of interest rate rises. There were lots of questions: Are banks waiting to see what the market is doing? Do they have a plan? Is there a reason why we’re at this certain rate?
At the present time, in the UK, Liz Truss has just been appointed as Prime Minister. So we’re all waiting to see what her plans are going to be. August was all setting up for this month, for September, where we are hoping for more clarity and a way forward.
We did see markets falling slightly again, so we’re hoping that September is going to be the start of recovering from that.
Managing market uncertainty
When we look back at the past year, it makes you see how important it is to look at spreading and diversification – more than ever before.
If you have an interest in investments, it’s always good to maintain a basic knowledge of what’s happening. If you look at the market, whether that’s the S&P 500 or the FTSE 500, you could probably plot a lot of the events we’ve talked about today with rises and falls in the market. And it’s important to then compare companies alongside that.
Some medical companies did fantastically well during the pandemic, and were more profitable than ever. On the other side, in entertainment and sport, for example, we saw a huge downturn. Looking at how the market changes helps you to look forward and think about how the market reacts to big global events.
Diversifying, not just in the types of investments but in the companies as well, keeping yourself open to as much of the market as you can, can be really beneficial in times like this.
With investing, you’ve got to look long term. Investments are not a good option for anybody looking for a return in less than five years, minimum. Ten years is a better minimum – because we know that the market is volatile, it rises and falls, rises and falls. If your money is worth £10,000 less today, but £50,000 more in a week, then we have to wait to withdraw your investment.