Editor's note
Donough Kilmurray
Chief Investment Officer
Welcome to the latest edition of MarketWatch.
Since our outlook edition of MarketWatch at the beginning of the year, the world economy has proven to be more resilient than expected. Europe and the UK managed to avoid recession over the winter, US growth is rebounding, and China finally exited its COVID-19 related slowdown. Unfortunately, good news can be bad news, as a stronger economy has kept inflation well above central bank targets. The key question for investors is whether the central banks can engineer a ‘soft landing’ from high inflation to lower inflation without crashing the economy?
The persistence of growth in the face of the sharpest interest rate increases in decades is encouraging, but vulnerabilities have emerged. The global property sector is struggling and, in flashbacks to 2008, we’ve recently had several bank failures. We note that these failures were very different from the GFC (global financial crisis) and that the financial system is in far better health now, but it does show that the economy is not immune to higher rates.
What are investors to make of all this? Usually, economic hard landings, or recessions, are associated with bear markets (down 20% or more) in stocks. But we’ve already experienced this, so there’s less to fear from a hard landing now that valuations have adjusted downwards. Despite falling recently, bond yields are much higher now than for most of the last decade, so there is more cushion in safer assets too. Overall, investment assets are not cheap, but return prospects are higher than they’ve been for some time, if investors can look beyond near-term uncertainty.
In this edition of MarketWatch, we investigate the likelihood of a ‘hard’ or ‘soft’ landing in light of recent developments. We take a deeper look at the impact of the US dollar on our investment portfolios and examine what is happening to the shrinking UK stock market. We also explore money market funds, an alternative solution to bank deposits for short-term liquidity.
Should you have any questions in relation to the content within this quarter’s edition, please contact your Davy Adviser.
Donough Kilmurray
Chief Investment Officer
Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. These products may be affected by changes in currency exchange rates.
Warning: Forecasts are not a reliable indicator of future performance.