Financial Market Update – 2^nd November 2023

When the world was already grappling with high interest rates and even higher inflation, the Israel and Hamas war has added fuel to the fire!

Hamas gunmen launched an unprecedented assault on Israel from the Gaza strip on the 7th October, killing more than 1,400 people and taking at least 239 hostages. Since then, more than 8,500 people have been killed following a series of retaliatory attacks by Israel.

Clearly financial markets are of trivial importance compared to the devastating human impact of these events, but we also understand that these are worrying times for our clients and their investments.

Since the end of 2021, all investment portfolios have experienced similar challenges, as bond markets crash simultaneously to equity markets.

It’s just been one thing after the other – COVID Pandemic, Supply chain issues following Brexit, Russia’s invasion of Ukraine, High inflation, soaring interest rates……...the list is draining.

These events have been really bad news for our portfolios – and for financial markets as a whole.

Bonds, such as UK Gilts and US Treasuries, which many of our clients hold in their portfolios are dependent of interest rates to remain consistent or to fall, because when interest rates rise; bond values fall! The value of global equities have also declined (with the exception of Oil and Arms) as higher borrowing costs negatively affect corporate earnings and hence stock price.

We have attended many webinars/seminars over the past couple of weeks and we have had several conversations with many of our provider contacts and they are all saying the same – recession is on its way!

Although there are plenty of negative consequences of a recession, an economic downturn is not the end of the world. In fact, recessions are an inevitable and necessary part of the economic cycle. During a recession we should see inflation soften considerably and central banks should start to loosen monetary policy again to try and re-boot the economy – by dropping interest rates which in turn should result in the Bond Market returning to normal and bond values increasing!

It has been a long slog of bad news and we think it’s likely to get a bit tougher before it gets better! HOWEVER we are very reassured by the underlying fundamentals of our client portfolios…...many of the underlying assets are currently undervalues and this will eventually lead to very pleasing returns for our clients.

History has shown that, when it comes to financial markets, what goes down eventually comes back up, although the road to recovery may be a bumpy one.

On a positive note, we witnessed the Federal Reserve Chair Jerome Powell announced that they are holding the rates last night, and the Governor of the Bank of England follow suit today.

Analysts and market makers alike interpret the Fed Reserve Chair’s subsequent comments as positive, with immediate market responses being positive. They do not believe further increases are required, which means inflation is on the Central Banks track to return to 2.00%. Bonds and Equities are responding positively today, up between 1.50% and 2.00%. We hope for more positive returns in the run up to Christmas.

For now, we ask our clients to be patient. Now is not the time to panic and now is not the time sell!

If you are at all worried about your Portfolio, please do not hesitate to pick up the phone. We are always here for you.