Markets have been bungee jumping through a number of peaks and troughs over the last 12-15 months with stability and confidence being relentlessly buffeted en route.
No more so than in recent weeks.
We have seen an 11th consecutive Bank of England rate increase – to 4.25 per cent; inflation, which far from falling, rose in February to 10.4 per cent; a fresh “banking crisis” as a series of US institutions and Swiss investment bank Credit Suisse ran into trouble – when will they ever learn; and the ongoing war in Ukraine.
Far from doom and gloom though. Instead, ever more reason for investors to hold their nerve.
Probe a bit deeper than the headline statistics and, for example, the inflation surge was partly down to freakish food prices, an annual jump of 18 per cent for vegetables, due to problematic growing issues with imports. Choose good, old, English turnips and sprouts and you won’t have the same collywobbles.
Meanwhile the BoE report was significantly more positive once you dug into it.
The minutes revealed that it expects national income to grow slightly in the second quarter of the year rather than shrinking by 0.4 per cent, as previously anticipated.
The change would mean that the UK would no longer face a technical recession, defined as two successive quarters of economic contraction.
Governor Andrew Bailey said that while the prospects of a recession had been on a “knife-edge” back in February, he feels “a bit more optimistic” and expects inflation to tumble in the summer.
He said: “We’ve seen signs of inflation really peaking now. But of course it’s far too high … we need to see it starting to come down progressively and get back to target.”
The Bank is expected to raise rates on at least one more occasion, and it added: “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
However, that now seems less likely.
It believes inflation is likely “to fall sharply over the rest of the year”, and continued: “There will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a sequence of very large and overlapping shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, inflation will return to the two per cent target sustainably in the medium term.”
Commenting on banking woes, it went on: “The UK banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The assessment is that the UK banking system remains resilient.”
No need to panic therefore.
Indeed, with all the usual caveats that you should not judge future returns on past performance, there is every hope that 2024 should see renewed vigour in the markets.
The advice we offered investors in August last year remains highly relevant – focus on your goals, take solace from history, remember that investing beats cash, don’t constantly check your investments, and stay diversified.
It is time in the market, not timing the market, that is key to long-term returns.
The world has endured plenty of huge shocks – from wars to deep global recessions. History has shown that no matter what challenges the global economy has faced, markets typically recover from downturns and go on to deliver impressive returns over the long term.
Spread your money across a range of asset classes including equities, bonds, property and cash.
Keep calm and carry on investing.