Investment market update: July 2022

August 01, 2022

The ongoing war in Ukraine, rising interest rates and soaring inflation could be pushing some economies towards recession in the coming months.

This uncertainty has caused real volatility in global stock markets. Indeed, 2022 was the worst first half of the year for developed market equities in more than 50 years.

As an investor, you may be worried about the effect the current situation could have on your portfolio and long-term plans. However, it’s important to remember that investing is a long-term endeavour, and short-term volatility is something that is to be expected.

If your plans haven’t changed, it’s unlikely your financial plan will need to change either.

If you have any questions, please contact us.

UK

The war in Ukraine is significantly affecting fuel, energy, and food prices, which is continuing to place pressure on both households and businesses. With a further significant rise to the energy price cap coming in the autumn, millions of households are facing an unprecedented squeeze.

Inflation reached yet another 40-year high in the 12 months to June 2022. The rate of 9.4% is slightly higher than the 9.1% recorded the previous month. Rising prices for motor fuels and food resulted in the largest upward contributions to the monthly rates in June 2022.

Fears of a recession subsided slightly with the unexpected news that GDP in the UK grew by 0.5% in May 2022, after a decline of 0.2% in April.

However, although the UK economy is performing slightly stronger than the eurozone or the US, the latest monthly survey from the S&P Global/Chartered Institute of Procurement and Supply (CIPS) showed both the UK services and manufacturing sectors are struggling to cope with rising cost of living pressures.

The CBI’s latest ‘Industrial Trends’ survey found that output volumes and new orders in the three months to July both increased at the slowest pace since April 2021.

Political issues also created uncertainty in the UK, after Boris Johnson resigned as prime minister, kickstarting a Conservative leadership contest that will run until September 2022.

A series of strikes across the UK are also affecting business operations. Two days of further strike action on UK railways in July will be followed by further walkouts in August, while strikes involving Post Office workers, and airport staff have also caused disruption. Issues at border control have also caused significant delays to travellers heading to Europe through Britain’s ports.

Overall, the UK FTSE All-Share index fell by 5% in the three months to the end of June 2022.

Europe

Ongoing food, energy, and fuel supply issues exacerbated by the war in Ukraine also hit the eurozone economy in July.

In response, the European Central Bank (ECB) raised interest rates for the first time since 2011 to tackle eurozone inflation that has increased to 8.6%.

In a surprise move, the ECB raised its base rate by 0.5 percentage points, despite economists predicting a smaller 0.25-point rise.

The ECB’s president, Christine Lagarde, said: “We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices, and pipeline pressures in the pricing chain.”

Confidence in Europe’s leading economies is low, as soaring energy price and fears of a gas shortage drive down confidence.

Research institute IFO has reported that German business morale fell in July to the lowest level in over two years. IFO’s business climate index fell to 88.6, from June’s 92.2 – the worst reading since the first Covid-19 lockdown. It puts Europe’s largest economy on the threshold of recession.

European shares, as measured by the MSCI Europe ex-UK index, fell by 10% in the second quarter of 2022.

US

Separate Purchasing Manager’s Index (PMI) surveys have pointed to the US already being in recession.

America’s composite PMI fell from 52.3 to 47.5 in July, its lowest level in 26 months. The rate of decline in manufacturing and services was the steepest since the beginning of the Covid-19 pandemic, due to falling demand.

As in the UK, the US inflation rate soared to a 40-year high, reaching 9.1% in the year to June 2022.

Despite many pessimistic predictions, the US showed robust job growth in June, defying expectations of a slowdown and keeping the unemployment rate at just 3.6%. Meanwhile, retail spending, a key indicator of economic health, rose 1% in June – although some of that increase can be attributed to rising prices.

US shares have rebounded in July after a difficult few months. After falling into a bear market earlier this year, the S&P 500 index is currently up more than 8% from its 2022 low and, by the end of July, was trading at its highest level since early June.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

What our clients say

The people we help are at the heart of what we do. Here are some of their testimonials.

I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

Having recently transferred my financial management to Stratton Wealth Management, I have been extremely impressed with the highly professional service I have received. I feel I have been fully involved in all decision making, and the company's highly skilled advisers have shown commitment and patience in any dealings I have had with them. I have also always found them to be easily accessible for any discussion I may require.

Denise Thornton -

A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

Lee and Claire Parkinson -

Clients since 2016

Darius deals with my family’s finances and is a very trusted adviser. We meet a number of times a year, but I know I can call him any time if I have any questions. He is proactive, helpful and friendly!

Jonathan Dennis -

A client since 2019

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

Colin Dunstall, Donaldson Dunstall Solicitors -

A client since 2015