This year we have seen inflation at 50-year highs, unemployment at 50-year lows, soaring oil/petrol prices like the 1970s ‘oil shocks’, sudden interest rate hikes, big price falls in share markets, losses on so-called ‘risk-free’ government bonds, the collapse of crypto markets, ‘one in 100-year’ floods every few months in Australia, heatwaves in Europe, new cold war tensions, and war in Europe. These are truly, extraordinary times.
In recent weeks, the primary concern dominating markets has moved from inflation to growth. In June, the US inflation data printed a stubbornly high 8.65% annualised rate which is also mirrored in the UK (9%), Europe (8%), and Australia (6.1%). Central banks are determined to catch up on the fight against inflation by rapidly increasing interest rates. This will likely result in a recession, and the big question is whether it will be a hard or soft landing.
While the news of the day is negative and asset prices in every market are looking beaten up, it is essential to remember this is part of a cycle. Dare I say this? In Australia, it’s probably a recession we need to have, given how tight the employment market has become following the pandemic. Whether we have a recession or not, share markets have always managed to rebound out of the middle of recessions and slowdowns. This usually happens more quickly and strongly than most people expect, while pessimism is at its worst, and losses and bankruptcies dominate the news. This is why it is vital for long-term investors to stay invested and those with cash to look for quality assets while the prices are down.
I’m sure the second half of this year will have its share of surprises, and in portfolios, we err on the side of caution but also aim to be ready for rebounds.
If you would like to chat, please do not hesitate to get in touch!
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.