WeeklyWatch – Global volatility persists amid the Platinum Jubilee

07 June 2022

Stock Take

Echoes of instability

UK businesses and markets closed for two days to mark Queen Elizabeth’s Platinum Jubilee at the end of last week, meaning many people enjoyed a shorter working week.

Duncan Lamont, Head of Strategic Research at Schroders, considered the development of the economy during the Queen’s 70-year reign – which did, in fact, start a whole decade before the FTSE All Share Index was even initiated.

He said that, in 1952, the main stock market index of the day was the FT 30, which was led by textile companies, shipbuilders and carmakers.

Lamont remarked:

“In June 1952, the Bank of England’s key Bank Rate was at 4%. Inflation stood at 10.5%. This was one of the few periods in the last 70 years when – as now – inflation spiked sharply, rising significantly above the Bank Rate. Today the Bank Rate is 1%, and inflation (CPI) just under 9%.”

Lamont likewise draws our attention to the 1970s as a somewhat extreme example of instability. In 1973 and 1974, markets dropped by 28% and 50%, respectively. In 1975, the market made a comeback, posting 149% returns. Despite the fact that this was insufficient to completely make up for the losses witnessed during the previous two years, those who sold at the end of 1974 would have probably been worse off than anyone who stuck it out.

This scenario highlights how critical is it is to remain calm during volatile times. Over the long term, markets generally rise – and selling when they’re down means crystallising these losses, and possibly missing out on any recovery.

While today’s market isn’t currently anywhere near as unstable as that of the mid-1970s, it is, nonetheless, finding rising inflation and geopolitical issues problematic.

Persistent volatility in the US

Parallels can be drawn between the UK and US markets – the latter of which also continues to face volatility. A fortnight ago, the market managed to post some positive returns, yet it reverted to negative territory last week. This could, in part, be attributed to the release of May’s job data, which was lower than that of April. Investors are furtively watching the jobs market, as any indication that it might be getting too tight or ‘hot’ could magnify existing inflationary pressures.

Kristina Hooper, Chief Global Market Strategist at Invesco, believes that instability will persist for the time-being. Even though the market may move lower in the weeks to come, she believes it will bottom out at some point in the coming months, and that a strong, sustainable rally could follow.

She continues:

“That means it’s time to begin taking advantage of opportunities, which I believe are abundant. I wrote about tech stocks last week. Another area where I see opportunity is Chinese stocks, where sentiment is very negative and valuations are very attractive, in my view. In addition, I anticipate continued monetary policy accommodation and strong fiscal stimulus.”

Eurozone data

Over in Europe, the Eurozone released its inflation data last week, which reached 8.1% – up from 7.4% in April, and well above consensus expectations of 7.1%.

Andrew Kenningham, Chief Europe Economist at Capital Economics, said:

“Members of the European Central Bank (ECB) Governing Council are unanimous in believing that interest rates should be raised but divided over how quickly.

“We expect them to confirm next Thursday that the Bank will end net asset purchases in early July and raise the deposit rate out of negative territory by the end of September. The policy statement is also likely to leave the door open to a 50bp hike in July. We think surging inflation will ultimately prompt the ECB to raise interest rates more than the consensus and investors expect this year.”

Wealth Check

More and more people are discovering that retirement is no longer an abrupt event that occurs when they reach the State Pension age.

Indeed, when those now reaching the State Pension age began their working lives, living for a decade or more in retirement was still unusual. Nowadays, however, those of working age realise that there’s every chance they’ll live for two – or even three – decades past their State Pension age.

According to the Office for National Statistics, a 65-year-old man can now typically expect to live for another 18.5 years, while a 65-year-old woman has 21 years ahead of her on average.1

“Previously, getting to retirement was your chance to stop, but now it’s the next phase of life and the chance to start something new,” Tony Clark, Senior Propositions Manager at St. James’s Place, points out.

Read on for some tips on how to make the most of it:

  • What do you want from life?

It’s wise to review how you spend your time and what you actually want from life – regardless of whether or not you fully give up work in retirement.

  • Don’t underestimate your longevity

Research in 2018 by the Institute for Fiscal Studies found that, typically, people in their 50s and 60s underestimated their chances of surviving to age 75 by about 20 percentage points, and to 85 by around five to 10 percentage points.2 This increases the risk of running out of funds if you live longer than anticipated.

  • Talk it out

As you gradually age, you might consider setting up a power of attorney – that way, if you do lose capacity, you know that support will be in place. This does, however, mean having some potentially difficult discussions with your family.

  • Your team is everything

A financial adviser can take longevity into account, and therefore ensure that you don’t run out of money during your later years. They can map out your plans, review them accordingly as time goes on, make any necessary changes, and support you with those difficult conversations.

The key thing? Plan ahead – that way, retirement can be what you want it to be.

 

Sources:

1 National Life Tables – Life Expectancy in the UK: 2018-2020, Office for National Statistics, September 2021

2 Subjective Expectations of Survival and Economic Behaviour by Cormac O’Dea and David Sturrock, Institute for Fiscal Studies, April 2018

The Last Word

“Your Majesty, you have been with us in our difficult times. And you bring us together to celebrate moments of pride, joy and happiness. Maybe this year, it really is coming home.”

Prince Charles pays tribute to his mother at the Queen’s Platinum Jubilee celebrations.

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

Invesco and Schroders are fund managers for St. James’s Place.

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.

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