• ChetwoodWM

Client Update - 1st July 2022

“When the going gets tough, the tough get going”, or at least that is my recollection from my 1980’s music collection. Rather than quoting Billy Ocean, the original quote may allegedly come from J F Kennedys father. Ultimately, the message is that markets are currently under pressure from high inflation, rising interest rates and slowing global growth. In the face of such news, we try and manage the investment team’s enthusiasm for opportunistic purchases, versus the fact that markets have struggled – indeed the US S&P 500 has had its worst start to a year since 1970. The motto quoted above is used to underline that in such market conditions, we are all working incredibly hard for our clients’ interests and to manage, as best as we can, portfolio volatility.

When market commentary on the nightly (or morning) news gets as negative as we are currently seeing, one could surmise that it is time to sell risky assets and hunker down in cash. We understand. We have inflation higher than we can remember for 20 years, we have interest rate rises at the highest rate in 40 years and political wrangling confusing matters even further. But with inflation approaching 10%, is cash really the answer? We would argue that patience and fortitude are better allies.

Experience has taught us that recovery’s come when we least expect them. Patience is a rare commodity in financial markets, but it pays to try and look through the immediate news. Without being a hostage to fortune there has been some relief in the oil markets in the last couple of weeks. In the US, there are signs that demand is slowing and that some parts of the economy are seeing a build-up in inventories and price discounting. The flash June US manufacturing purchasing manager index (PMI) showed a decline in growth with the index dropping from 57.0 to 52.4. Signs of easing price pressures and slower growth are necessary to get the US Federal Reserve (FED) to suggest that enough is enough. Keep in mind that the FED wants to get inflation back to target over the medium term but also to achieve a soft landing. That means it will pivot at some point and cut rates once more, once the data shows the economy slowing meaningfully.

If the Chair of the US FED, Jerome Powell, gets his soft landing for the economy and can step back from higher interest rates and start easing financial conditions into the latter part of the year, equity returns will re-bound, probably when we least expect it. If inflation turns lower it will be growth stocks that lead the way. After all, labour market tightness, more aggressive unions, higher wages and supply chain issues make even more of a case for technology and automation.

Ultimately the message is to stay calm and keep invested. If you need help, you know where to find us. Do have a good weekend.

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