Market Insights Weekly Update: Reversing Course

Financial prudence in a volatile market helps you build a stable investment foundation. Our investment team shares 4 steps towards this.
8 November 2022

Financial prudence in a volatile market helps you build a stable investment foundation. Rather than investing based on speculation and stressing over your investments, take a long-term approach to meet your financial goals. Our investment team shares 4 ways towards financial prudence.

(31 October 2022 – 4 November 2022)

Global equities fell last week, with the S&P 500 falling by 3.35% and the MSCI World Index dropping by 2.10%, failing to maintain their positive momentum from the previous two weeks. MoneyOwl’s 100% Equity portfolio was relatively resilient due to the value factor outperforming in the portfolio, falling by only 1.22%. In fixed income, the US 10-year Treasury yield rose 16 bps to 4.26% and weighed on fixed income assets, with the Bloomberg Barclays Global Aggregate Bond Index falling by 0.89%.

The decline in stocks was catalysed by the Federal Reserve interest rate decision on Wednesday, as the central bank lifted its benchmark interest rate by 0.75%, marking the fourth time it had approved such a steep increase in a row.

During the press conference, Federal Reserve Chairman Powell stressed that now is not the time for a pause in rate hikes but did note they would decide on the future pace of hikes at the next meeting, either in December or February. The hawkish commentary in the press conference saw stocks and bonds tumble to close at their lows for the week as expectations for more rate hikes remained intact after Powell’s speech. Looking ahead to its December meeting, the Fed issued a statement that allowed flexibility to either approve another three-quarter-point increase or ease back to a half-point hike.

Make Wild Predictions In Virtual Trading, Not With Your Money

Today, stock trading programs sit alongside fantasy sports apps in our smartphones, offering easy access to stock or cryptocurrency trading—and sometimes faster than it would take to pick up a new tight end or place a bet on Sunday morning. But with your investment portfolio, the fantasy can only go so far, and the stakes can be much higher.

This may be a good time to think about the difference between speculating and long-term investing—and recognise that your investment decisions have real and lasting consequences. Building a stable investment foundation is key to helping minimise bad outcomes and position for potential rewards in the capital markets.

Four Steps Towards Financial Prudence:

Here are four ways to help ensure you are making prudent financial decisions:

1. Understand the impact of your decisions: It may be easy to get caught up in using convenient digital platforms to pick stocks or time markets. But without a solid investment philosophy, everyone runs a risk of getting caught up in the emotional roller coaster of speculation. Convenience and instant gratification are poor substitutes for a strategic, long-term investment approach guided by proven market principles and decades of research into asset behaviour and portfolio design.

2. Think long-term: Your virtual trading portfolio may last just a few months. That’s not the same as taking a lifetime view of accumulating and managing wealth. Your investment decisions should be based on a time horizon that matches your goals. Speculating on individual stocks or industry sectors encourages a short-term mindset that can be easily jarred by unpleasant surprises. Investing involves a longer-term perspective that rests upon a historical understanding of markets.

3. Know your investments: Digital platforms can give access to an ever-expanding range of alternative investments, from cryptocurrency to single-stock exchange-traded funds. To pursue good outcomes, it’s critical to understand the characteristics of stocks, bonds, real estate, and other asset groups—and their specific role in your portfolio. This means evaluating an investment’s expected returns, range of risks, and potential costs.

4. Seek out a qualified financial adviser: One way to create and manage an investment plan is to enlist a professional. Working with a financial adviser can help outline clear financial goals and make investments that contribute to those goals instead of simply gambling on the market. An advisor can also help you focus on controllable factors, such as diversification, portfolio rebalancing, and tax management. Of course, daily market moves are beyond anyone’s control, but you can choose how to react in a tough market.

Investing is not a game and shouldn’t be treated like one. So, sit back and enjoy blowing all the virtual money you want. You will realise that over the long term, you are glad that your wild bets stay ‘virtual’.

Just understand where in life you can afford to lose—and where you cannot. Financial security is built over the years, even decades. Not on any given day or through an application you downloaded from the app store.

With a solid investment plan and discipline to match it, you can pursue long-term success without the anxiety and emotions that come with speculation.

US Job Markets Aplenty

Despite the risks of a recession, U.S. jobs growth continued to exceed expectations. The government reported on Friday that the economy generated 261,000 new jobs in October, above forecasts for around 200,000. In addition, a separate monthly report issued on Tuesday showed that job openings rose to 10.7 million—also above expectations.

Euro Inflation

The annual inflation rate in the eurozone climbed to 10.7% in October, up from 9.9% the previous month. Energy costs jumped 41.9% over the same period a year ago and remain a big concern across the 19 eurozone countries heading into winter.  

Committed To Zero

China’s top health body said the nation’s zero-tolerance approach remains the overall strategy for fighting Covid-19 after unverified social media posts buoyed hopes the policy would be eased. This led to shares of Chinese companies snapping a two-day rally built on reopening hopes. The brief bullish turn shows how epic price moves will be if or when authorities in Beijing give a clear signal on ending their Covid-Zero policy – making the situation precarious for shorts.

A Higher Peak

Federal Reserve Chair Jerome Powell opened a new phase in his campaign to regain control of inflation, saying US interest rates will go higher than earlier projected, but the path may soon involve smaller hikes. He said the path to slowing down “may come as soon as the next meeting or the one after that,” but stressed that officials would not blink in their efforts to get inflation back down to their 2% target. Stocks took a beating. In the hour and a half from when Powell started speaking to the US stock market close, the 500 wealthiest people on the Bloomberg Billionaires Index lost about $59 billion on their public holdings.

Read more Market Insights here.

Disclaimer: While every reasonable care is taken to ensure the accuracy of the information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Expressions of opinions or estimates should neither be relied upon nor used in any way as an indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as an indication of future performance. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.

Follow MoneyOwl on social media for more awesome content on investments, insurance, and financial planning!

Share this