Stock markets enter 2022 in bifurcated manner – Market Briefing from Charlie Hancock

Posted by Niamh Bailey

Over the holiday period, stock market movements around the globe were relatively muted, with trading volumes significantly lighter than during normal periods of the year. Last week, volatility returned, with the market attempting to price in the outlook for corporate profits, interest rates and inflation.

With inflation running at levels significantly above central bank targets in most of the developed world, those in charge of monetary policy at the Federal Reserve and the Bank of England have started to tighten the money supply. The Federal Reserve are ending their asset purchase programme in March, with several interest rate rises on the cards during 2022. The Bank of England are expected to implement a further rate hike in February, following the increase from 0.10% to 0.25% last month.

The result of this reduction in liquidity was particularly evident last week, with growth stocks which are trading on relatively high multiples being punished and value stocks which are trading on more conservative valuations reacting favourably. We felt that markets would become more sensitive to the concerns around monetary tightening as we entered 2022 and as a result we implemented changes on the 23rd December to sell some of the growth strategies within our portfolios, allocating into funds with a value bias instead. The chart below shows how the funds we sold (Baillie Gifford American and Premier Miton US Smaller Companies) have performed in comparison to the funds we increased our exposure to (Schroder US Mid Cap, Artemis Global Income and JO Hambro UK Equity Income).

Stock Market January 2022

Whilst this is a very short period to compare performance, we feel that these market conditions could persist for some time and have positioned our portfolios accordingly. Attempting to time the market is almost impossible, but we pay close attention to market behaviour and are constantly reviewing our asset allocations. Where we feel that changes can be made to protect our portfolios, we will act accordingly.