[ADVISOR VIEW] Global economies and markets are undergoing long-term structural changes. MauroForlin of GlobalLocalZA looks at what this means for investors. PersonalFinance Investing
2022 can be described as a year characterised by many macroeconomic and geopolitical events that will undeniably change the way managers and retail investors look at markets going forward.
In this article, we will be looking at the market dynamics that have prevailed in 2022 and what it means for investors. Specifically, we will look into:For the past decade, investors have been able to rely on what has become known as the central bank “pivot” to bail markets out of any severe downturn.
The above figure shows the S&P 500 index price chart from 2010 to date; we used this index as it is a proxy for the US market, which is the largest and most tracked in the world. Until the end of 2021, an investor would have enjoyed relatively stress-free positive returns by passively investing in a fund tracking the S&P 500 index. Specifically, from 2010 to 2021, the index earned a cumulative return of 258.3% or 11.2% annually.
The overriding reason for this is because of the ongoing battle against inflation. Over the past decade, US inflation has remained within a comfortable band around the Fed’s target of 2%, which has allowed them to accommodate markets when times got tough. However, with inflation rates at multi-decade highs, they have had no choice but to tighten monetary policy to drain liquidity and excess demand.
From a sectoral perspective, there have not been many places to hide. All sectors have produced negative performance year-to-date, with energy being the one exception. This is due to the sharp rise in energy commodity prices because of the Russia/Ukraine war and a structural supply shortage stemming from years of underinvestment.
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