The 2022 Soccer World Cup that started on 20 November has become a hot topic at social gatherings, birthdays, and even work functions. With people’s spirits up because of more positive markets, coupled with the smell of summer and the December holiday around the corner, soccer supporters will undoubtedly fancy the chances of their favourite team winning this year’s tournament.
Global markets received some welcome news last week when the annual pace of consumer price inflation (CPI) in the United States (US) was lower than expected in October, coming in at only 7.7%, down from 8.2% in September. Pre-holiday retail discounting, a decline in used car prices, and a welcome easing in rental inflation were key drivers of the overall decline in CPI. Lower inflation will provide some relief to consumers and investors, as well as give some momentum to the idea that the worst is now behind them.
Airbnb, an online marketplace focussed on short-term homestays and experiences, reported its highest quarterly profits ever, confirming that the travel industry continues its pandemic recovery in the face of historic inflation. This, in turn, confirms that global demand is still strong and that central banks will need to do more to curb demand and the upwards effect that it has on high inflation. The home rental platform saw its net profits climb 46% year-on-year. Trips to non-urban areas “are here to stay as millions of people have newfound flexibility in where they live and work”.
Investors have experienced a rigid “dichotomy” in financial markets over the past two months: September and October stood in stark contrast to one another. Within the space of two months, we have experienced one of the worst and one of the best months of the year.
During the last couple of months, we have partnered with many financial advisors, doing our utmost best, to keep investors calm during this period of extreme volatility. It has not been an easy task. Since the last quarter of 2018, global markets have seen three major disruptions. In 2018, indices such as the S&P 500 contracted by more than 15% during the last quarter.
Last week, the United States (US) Federal Reserve (Fed) increased interest rates by 0.75% for the third consecutive time this year. Interest rates in the US now range between 3% and 3.25%, and many expect that rates will, most likely, increase to 4.40% by the end of the year. Fed Chairman, Jerome Powell, made it clear that they are willing to do whatever it takes to ensure that inflation is brought under control.
After more than a decade of above-trend market performance, many developed markets have started a process of mean reversion. Many leading global banks and asset managers believe that the average annual share performance among companies in the United States (US) will only be 5% in USD over the next decade. This is far less than the above 20% annual growth that we often saw over the past decade.
“Historically, September is the worst month of the year for equities.” We used these cautionary words in our previous monthly newsletter to describe a possible poor month for markets in September. It would seem that we could not have chosen our words any better for what lay ahead.
Last week, the United States (US) Federal Reserve (Fed) increased interest rates by 0.75% for the third consecutive time this year. Interest rates in the US now range between 3% and 3.25%, and many expect that rates will, most likely, increase to 4.40% by the end of the year. Fed Chairman, Jerome Powell, made it clear that they are willing to do whatever it takes to ensure that inflation is brought under control.
There are many rumours going around again about how bad our economy will perform this year, and possibly in the years to come. Many South Africans blame a variety of aspects for this poor performance. If your political convictions lean to the right in South Africa (SA), you have the more erroneous view that government can do a better job than the market when it comes to allocating scarce resources. Your answer to the current low economic growth environment is, therefore, to nationalise resources.
