Market Insights July 2022

Current Topics in Markets

To the surprise of many people, July turned out to be the best month so far of 2022 for financial markets. Most equity markets had a strong bounce, driven by better than expected earnings from a number of large US companies and perhaps also a sense that central banks are finally getting things under control. Even bond markets moved in a positive direction despite a large rate increase of 0.75% by the US Federal Reserve and a signal that there could be a similar increase in September.

The Fed is determined to bring inflation into line and is sticking to its view that it can successfully do so without tipping the country into recession. Normally this would be a highly unlikely outcome and the Fed is defending its view on the basis that the labour market is particularly strong at present and that the high unemployment levels normally associated with a recession will not occur. This remains to be seen and any disappointments on this front will most certainly bring more volatility to markets over the coming months.

Equity Markets

While equity markets had a strong month in July, we are sticking to our view that more volatility is likely in the short term. Having said that it would be a mistake to avoid equities completely as experience has taught us time and again that recovery phases in the market can take place very quickly and can be relatively brief in duration, so it is a mistake to be fully out of the equity market for any length of time. There is no doubt that there is value in equities that wasn’t available a year ago and we have little hesitation in advising clients to cautiously take advantage of this. Emerging markets look particularly attractive at the moment compared to historic norms and our Fund in Focus this month plays to this theme.

Bonds

Bond markets almost moved positively during July with the Bloomberg Global Bond Index ahead by 2.5%.
Year to date the fall in bond markets is now around 7%. Bond investors seem to have come around to the view that while there will be a series of interest rate rises over the shorter term, many of these increases could be reversed over the next couple of years should economic conditions take a significant turn for the worse. Our expectation is that the worst is probably over for bond markets for now and that they will be more stable looking out over the next 12 months.

Property

As an asset class, property is anything but uniform. While there is plenty of uncertainty around some subsectors e.g retail and some offices, other sub-sectors are showing strong growth such as logistics, healthcare and residential. Internationally, there are still plenty of opportunities available for investors to get exposure to these growth areas via fully liquid vehicles at discount valuations and offering yields of 5% and higher.

Alternatives

Over the past couple of years as both bond and equity markets became increasingly expensive, we have been consistently recommending to investors to build up higher weightings to Alternative Investments in areas like infrastructure, renewable energy and even selected hedge funds. In the current markets, we see no reason to change this advice as many of these investment opportunities offer protection against both volatility and inflation as well as offering a very attractive level of income.

As always, you should only consider the investment views contained in this Market Insights update in the context of your own attitude to risk and how such choices might impact your Asset Allocation model. Should you wish to discuss your investment portfolio, please contact Harvest Financial Services on 01 2375500 or email justask@harvestfinancial.ie