Volatility is back
2022 has started with some fireworks and a return of volatility to markets. The main reasons for the return of volatility cited in recent market commentary reports tie in with our ‘5 things to look out for’ post from 7th January:
- Inflation – is still in the system and mostly coming in ahead of expectations.
- Rising rates – rates have risen – US 10 year has gone from 1.63% to 1.79%. The market is pricing in at least four 0.25% interest rate rises in the US this year with a 100% chance of a rise in March.
- Starting valuations – valuations in higher risk areas of markets have fallen considerably from elevated levels.
- Politics – this has really come to the fore with increasing tension between Russia & Ukraine.
- Complacency – this was rife but complacency, as seen in valuations, has reduced dramatically and indeed we have seen some signs of panic in recent price action.
The above issues have been known to the market for a while but the intensity of them has increased and has led to some pretty sharp drawdowns. The worst-hit areas have been:
- Russian Equities -14.6%
- Tech heavy US NASDAQ -11.5%
- S&P 500 -7.5%
- Finally the ultimate poster child for risk – Bitcoin -21.5%
The question investors are asking themselves now is “Is this an opportunity, or the start of a more serious correction?”.
The answer will depend on how the five key issues identified above evolve.
One thing is for sure and that is that volatility has returned in 2022.
Our view is always that short term market movements are impossible to predict and so the importance of having a long term wealth management strategy is paramount. This strategy pays dividends in times of market volatility. Living with market volatility is a normal part of any long term investment strategy.
Opinions constitute our judgement as of this date and are subject to change without warning.