Holly's blog: Moggies, Bobcats and Bears
17 June, 2022
This week’s big news is of course interest rates on the march. Yesterday morning the Bank of England confirmed it was raising rates to 1.25%, the highest level in 13 years. Inflation – a word which in 2022 has moved from Economics textbooks onto the front pages everywhere – is at a 40 year high of 9% and we’ve been given 11% as a potential rate to expect later this year.
I thought it was particularly undignified to get a triumphant text from dear old Barclays Bank at 12.53pm yesterday, confirming that my mortgage rate was going up. I’m selling my house at the moment so my lovely fixed rate deal came to an end in June, there was no point trying to sort a new mortgage for a few months, so I’m on the worst possible Dear-Loyal-Existing-Customer new rate possible. Imagine how surprised I was that none of the 3 high street banks that I have personal and commercial accounts with sent me a similar text to tell me how much more they would be paying me on cash held in accounts. How odd, I thought. Maybe my phone wasn’t working!?
Enter the Bear stage left….
The Bank of England looked like docile Moggies compared to the American bobcat as the Fed increased rates by a chunky 0.75% this week.
Normally such an interest rate hike would cheer up the stock market, but the S&P 500 is bear-ing its teeth. (See what I did there..!?) Bear markets are technically defined as those which are 20% off former highs. And the S&P 500 – simply a collection of the 500 largest listed companies in America - has fallen over 20% since its record high in January this year. So this weekend your Sunday papers will be full of stock photos of roaring grizzly bears.
Technology shares have been particularly hard hit – they are mostly about tomorrow’s potential rather than today’s cold hard cash, and high interest rates of course make reaching tomorrow’s goals that bit harder. Over 90% of companies in the S&P 500 technology sector index have fallen by at least 20% from previous highs. Ouch.
Netflix has been the S&P 500's worst performer in 2022, down over 70% year to date. Just saying if they’d brought back the Duke of Hastings for Series 2 of Bridgerton it might have been different but hey ho……
Closer to home the FTSE 100 has ‘only’ fallen by about 4% this year, shielded in part by exposure to oil and commodities. But no-one can hide from falling consumer spending as inflation bites. Just this morning a FTSE 100 component company – Tesco – announced early indicators of changing consumer behaviours and a fall in revenues, as basket sizes shrink and people switch to cheaper own-brand alternatives.
Plan B!?
OK so traditional assets are a bit ho-hum. I know! Crypto! Oh dear. Crypto currencies are dropping all around us and there are various bloodbaths happening as we speak.
This week some commentators have noted a shift from FOMO (Fear Of Missing Out) to FOHO (Fear Of Holding On). As the bad headlines increase, this FOHO will inevitably shift from more speculative assets to mainstream markets as it always does. We are herd animals when it comes to investing and it gets progressively harder to hold your nerve and not ditch the sensible stuff as chaos and fear ripple across the markets.
These things are always cycles. At some point in the coming months we will start to read about Buying The Dip. That’s the next phase. But we’ve got a little way left to go before we get there. Hold tight people.
Have a great weekend all. Enjoy the sun amidst the stock market storm clouds!
Holly
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