Economic weakness has continued to persist across most major economies around the world. In this article, we explore the major market moves in the last quarter, including how the US has entered an informal recession and how inflation is putting pressure on central banks.
Is the US in a recession?
As described above, the US entered a technical, informal recession with a 2nd consecutive quarter of negative GDP growth. We still await the more formal decision on whether & when we enter a recession by the National Bureau of Economic Research (NBER); their Business Cycle Dating Committee maintains a chronology of US business cycles. This committee is composed of six men & two women – led by Robert Hall, a 78-year-old Stanford University professor. Nonetheless, it is highly likely we have entered a recession. Why? If we look back, every time since 1948 that GDP has fallen for at least two straight quarters, the NBER has ultimately declared a recession.
How inflation is putting pressure on central banks
Persistent inflationary pressures continue to pressure central banks to tighten their monetary policy. The irony is that excessively easy monetary policy from major central banks substantially created many of these inflationary pressures in the first place.
While the US saw Consumer Price (CPI) dip during July to 8.5% (from 9.1% the previous month), the UK is now seeing double-digit headline inflation at 10.1%, the highest level in 40 years. Consequently, major central banks such as the Federal Reserve, Bank of England, & European Central Bank will continue to raise rates until their policy rates have reached a sufficiently restrictive level.
An update on equity markets
Equity markets witnessed the worst first half for US shares in more than five decades. Leading indices such as the S&P 500 declined 21%, and the tech-heavy Nasdaq declined 32%. The subsequent rebound, however, has been impressive. Since mid-June, the Nasdaq climbed more than 20% from the lows and the S&P by 17%. While there is still plenty of uncertainty, equity markets are priced for optimism. Being in well-diversified portfolios across multiple asset classes remains our recommended approach to accumulating wealth in the long term & navigating any medium-term volatility that may still lie ahead.
What to do next?
Whilst there are some concerning changes in global market data, it’s important to remember that investors generally cannot time markets successfully, and the best strategy is not to make any rash decisions and consider the long-term outlook.
If you have any questions about this market update or want to find out more about Brite and how we can maximise your pension and investment assets, please get in touch with us.