Written by Richard Warne.

It was a real mixed bag last week in terms of returns within the equity markets with the MSCI All Country World Index down -0.6%, and the S&P 500 in the US down -1.1% in Sterling terms. It was really pleasing that it was not a sea of red across the board, with MSCI Emerging Markets +1.7% and the FTSE All Share Index +0.2% in Sterling terms, while the worst performing region was MSCI Europe Ex-UK with the region down -1.4%. This worked fantastically in terms of our tactical equity positioning, as we are overweight in Emerging Markets and the UK and underweight in the US & Europe ex UK.

Looking back over the last week there has been a barrage of headlines in the media in regard to food price inflation “Italian’s face pasta price increase of almost 40%”, then “Empty shelves”, “Off the menu”, “Flight curbs”, “Raising cane”, “Winter winner”, “Soaring butter”, “Getting hit” & “Peak fertiliser” are just a few to catch our attention. So, we have shortages of fried chicken in Japan, dairy prices spiking in the US, swine flu killing the pork market in parts of Europe, supply chain chaos in India impacting sugar cane prices, flight curbs in Hong Kong disrupting importation of goods. Higher fertiliser prices, difficulty recruiting labour, rising transportation costs and materially higher energy costs.  We have talked about inflation in previous issues, and it certainly appears to be perforating through many areas – one suspects it will remain high on the agenda as we move through 2022. The jury is out on if we are getting close to “peak” inflation, with markets pricing in four possible rate hikes for 2022, and a balance sheet runoff that highlights just how different these tighter financial conditions are compared to just a few months ago.

Markets have had a wild start to the year. The news flow, volatility and macro events have come thick and fast, sending rates higher as the US 10 year Treasury yield ended the week at 1.78%, and the Nasdaq 100 was down for a third straight week. If this start is anything to go by, it’s fair to say this could be a challenging year. Valuations, fundamentals, the ongoing pandemic, tightening Fed cycle and increased political tensions are the backdrop for investors to navigate. This all sounds bearish, and we all should be acutely aware of the risks, but if markets don’t necessarily grind higher as they did through last year, then it could be an environment where positioning and stock picking can add real value to portfolios.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 17th January 2022.
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