WeeklyWatch – News from the Fed sees US tech stocks slump

11 January 2022

Stock Take

Interest rate hike

Last week saw US technology stocks slump, after a better-than-expected jobs report bolstered expectations that the US Federal Reserve will raise interest rates in 2022.

The central bank released the minutes from its latest meeting on Wednesday last week – disclosing that officials are considering increasing interest rates sooner than investors were expecting, in order to tackle high levels of inflation. The minutes revealed that some officials believe rates should be raised ahead of the Federal Reserve meeting its goal of hitting maximum employment in the US.

The inflation effect

Ever since the coronavirus pandemic caused the shutdown of global economies, central banks have maintained stable asset prices thanks to low interest rates and other forms of support (for example, bond purchases).

That said, inflation is now growing, and so many of them have made moves to withdraw this support. The result is that some corners of the market – such as in the share prices of technology companies – are already feeling the effects.

Mark Dowding of BlueBay Asset Management, a fund manager for St. James’s Place, observes that actions such as the Federal Reserve’s impending interest rate hikes cue a shift in economic conditions – following a period in which central banks have comprehensively supported markets.

He added:

“In many respects, 2022 begins with a sense of optimism after two years of the pandemic. As normality returns, we are inclined to think that fundamentals and valuations will play a more important role in determining the path of asset prices than they have during a period characterised by abundant liquidity and market technicals.”

From pandemic to endemic?

The latest media reports indicate that the UK is moving towards ‘living with’ COVID-19 due to signs that Omicron is less severe than previous variants, and therefore brings with it a ‘new normal’.

However, the ongoing economic uncertainty suggests that investors would be wise to take a long-term view with a broad range of investments. The beauty of investing your funds across a host of assets should mean that their performance won’t be solely dependent on any one outcome.

Wealth Check 

If you’re a parent or grandparent and wish to leave something to your heirs once you’ve passed away, it’s crucial that your retirement planning accounts for this.

The reason behind it is that pensions and ISA savings can be handed down to the next generation – just as with investment properties or the family home. So, when doing your calculations and preparing for your own retirement, it’s a good idea to take a holistic approach to the whole family’s finances and weigh up how your loved ones might benefit from your pension savings when you die.

If you think that all things related to inheritance are something to only focus on around the time of writing a Will, you’re not alone.

It’s true that having a well-drawn-up Will – one that’s kept updated as your circumstances fluctuate – is essential to ensuring your beneficiaries are looked after.

However, rather than building up your assets and then deciding who gets what in your Will, it makes sense to instead imagine what kind of assets you wish to set aside for each family member, and then creating a financial plan around this.

This slight shift in thinking, from looking to the past to focusing on the future, can make all the difference when it comes to securing your family’s finances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills are not regulated by the Financial Conduct Authority.

The Last Word

“The thing that might happen in the future is you may see the emergence of a new variant that is less severe, and ultimately, in the long term, what happens is Covid becomes endemic and you have a less severe version. It’s very similar to the common cold that we’ve lived with for many years. We’re not quite there yet, but possibly Omicron is the first ray of light there that suggests that may happen in the longer term.”

Dr Mike Tildesley of the Scientific Pandemic Influenza Group on Modelling.

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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