It hasn’t taken long for the markets to begin worrying about a whole raft of considerations – from mixed economic data, stronger than anticipated inflation in the US, crypto regulation, oil price concerns, and Red Sea shipping conflicts through to potentially weaker earnings.
There is always something to worry about and after a strong rally, it appears that the focus always goes towards why markets may ‘come off’, as opposed to what will drive markets forward. To be fair, some markets look expensive, like the US. Some, like Europe, suggest fair value whilst the UK and China look cheap. Remember though, they are cheap for a reason!
More about the outlook for the year next week in our Quarterly Investment Overview. This week we have spoken at length to various investment houses to ascertain their views and, I’m pleased to say, in the main we resonate with their sentiment. At the start of last year, there was quite a marked demarcation between those who were risk-on and those who were risk-off. This year, despite the geopolitical issues regarding conflicts and with circa 50% of the world’s population going to the polls, there is a resonance between the views of the investment houses in question.
More about this next week.
US inflation numbers disappoint
A rise in US inflation in December dampened expectations of an interest rate cut as early as March. Inflation came in at 3.4%, ahead of market expectations of 3.2%. Investment markets were choppy before settling back to a level before the announcements. One set of data is not particularly worrying but if a pattern emerged around stickier inflation, the markets wouldn’t like this in the short-term.
Some perspective is required and stepping back it is important to appreciate that inflation is now much better than market expectations were last year. US inflation is now down by about 66% from the peak during the summer of 2022.
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