Correction in the markets?

There is no doubt in most peoples minds that the UK Government and Central Banks will be pushing up interest rates again as inflation really starts to bite. What does this mean to returns on shares and government bonds? Well typically bonds will fall in value when interest rates rise. Generally individual investors as well as fund managers will run for cover by selling shares and buying Government bonds when the markets fall amongst market uncertainty. Mainly this is because bonds are seen to be safer and are used for their yields. However, now that we are seeing interest rates rise to combat inflation it makes it difficult to consider bonds. In this case some fund managers will use cash as a parking spot in difficult trading times, but this is usually for a very short time.

Currently we are seeing the US Central Bank rapidly unwinding the stimulus measures which were set in place to combat a Covid economy. Largely the stimulus was responsible for providing growth in the Global Markets. Now we are seeing a sell off in the tech markets and other share winners as a result of the unwinding, so should we be concerned?

Given the statistics we are still looking at strong GDP growth. It appears we are in “Growthflation” rather than Stagflation! Returns lately have fallen mainly due to Omicron, however this should recover in about three to four months. We still need to consider if Omicron will loosen its grip on the world economy, and how the markets will react, however we are likely to see a moving away from goods and back to services. It seems most unlikely that a huge race out of stocks into bonds will happen since bond yields are well below earnings yields, which would otherwise cause a stock market crash. Unbelievably, we are seeing the UK economic output above pre pandemic levels fuelled by strong construction growth which happened before Omicron and GDP has risen by 0.9% which was more than double the 0.4% predicted by the economists. We will no doubt see a strong return to work, additionally many restrictions being relaxed or totally disappearing. We are currently seeing a lot of pressure on Downing St and potential violent conflict in the Ukraine from Russia and what will the USA do in terms of reaction? Markets have all been through all these types of changes before and still fared well. There is no timing the market, it is all about time in the market, however procrastination wastes opportunities.

Now is time to have a look at your investments. Which sectors are you invested in and how much are you weighted in Government bonds and shares? Has this all been rebalanced lately? Where are you pitched to take advantage of the opportunities of a post pandemic market? Contact me about balanced investing in a volatile market. Andrew Gibson on +34 603 612 464 or email: andrew. gibson@blacktowerfm.com. Website: www.blacktowerfm.com/locations/spain-costa-blanca

This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.

Blacktower Insurance Agents & Advisors Ltd is regulated in Cyprus by the Insurance Companies Control Service and registered with the DGS in Spain. Blacktower Financial Management (Cyprus) Ltd is regulated in Cyprus by the Cyprus Securities & Exchange Commission and is registered with the CNMV in Spain.