In this week’s market insights, our investment team shares why global diversification is a viable long-term investment strategy.
(1 August 2022 – 5 August 2022)
Equities Taking a Break
Equities cooled off and ended flat last week in the wake of their previous week’s rally. The S&P 500 rose 0.38%, MSCI World Index was up 0.21%, and MoneyOwl’s 100% equity portfolio saw little change at -0.23%. Growth stocks generally outperformed their value counterparts.
There was a sell-off in bond prices as Friday’s US stronger-than-expected jobs report added to the selling pressure on prices of government bonds, which sent yields on a sharp increase. The 10-year US Treasury bond yield climbed to around 2.84% on Friday, up from 2.64% at the end of the previous week and the Bloomberg Barclays Global Aggregate index was down 0.39% as the week ended.
Global market participants are now turning their attention to the US Consumer Price Index report scheduled to be released on Wednesday, which will show whether the US economy got any relief last month from surging inflation. In June, inflation accelerated at a 9.1% annual rate – the highest in more than four decades and above the previous month’s 8.6% figure.
Staying Diversified and Staying Invested
Following the correction in equity markets in the first half of 2022, macroeconomic conditions are becoming more supportive of a diversified portfolio. Hence, it is important for investors to stay invested. Inflation will eventually ease due to tighter global monetary policy and oil prices stabilising recently. As seen from consumer surveys, long-term inflation expectations have been decreasing. US treasury yields have also been falling.
While the recovery in equities for July has been impressive, investors should continue to be patient since the US is only at the start of its economic slowdown. Amid economic uncertainties, a globally diversified portfolio would provide a better solution for generating returns and income. Trying to time the market or picking stocks is still dangerous at this point as the debate on global recovery or global recession continues.
Investing is a means to help you safeguard your retirement, put your savings to their most efficient use, and grow your wealth through the magic of compounding. Long-term investors know that the market and economy will recover eventually, and as investors, we should always be positioned for such a rebound and focus on the long term.
US Jobs Surprise and Pandemic Jobs Recovery
Despite the recent slowdown in US economic growth, the labour market continues to exceed expectations. The US government reported Friday that the economy added 528,000 jobs in July –far exceeding most economists’ forecasts – and unemployment fell to 3.5% from 3.6%.
The latest monthly employment gain also marked a milestone, as the US economy recouped the 22 million jobs lost in the initial months of the pandemic nearly two and a half years ago.
UK Rate Hike
With inflation continuing to surge, the Bank of England raised interest rates by a half percentage point – the United Kingdom’s largest rate increase since the bank became independent from the British government in 1997. As a result, policymakers projected the UK’s longest recession since the global financial crisis.
Pelosi Lands, China Responds
US House Speaker Nancy Pelosi landed in Taiwan on Tuesday, becoming the highest-ranking American politician to visit Taiwan in 25 years. That prompted China to condemn the visit and announce missile tests and military drills that set the stage for some of its most provocative actions in decades. Pelosi held a joint press briefing with President Tsai Ing-wen and pledged that the US would not abandon Taiwan, reaffirming American support for the democratically elected government in Taipei, despite threats of fresh trade curbs and military actions by Beijing.
Tech companies have been rethinking their staffing needs against the current economic and geopolitical backdrop. Now more crypto firms are joining the trend. For example, Robinhood is eliminating almost a quarter of its workforce and shuttering offices after a punishing first year as a public company. The move follows an earlier headcount reduction in April when Robinhood cut about 9% of its staff. Separately, MicroStrategy co-founder, Michael Saylor, gave up his Chief Executive Officer title and said he would focus more on Bitcoin after the enterprise-software maker reported a loss of more than $1 billion, related to the second-quarter plunge in the price of the cryptocurrency.
US health officials have declared monkeypox a public health emergency – a step aimed at raising access to treatments, services and funds to fight the virus, as demand for vaccines outstrips supply. The disease has infected more than 26,000 people globally in just a few months.
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