Market Update

The New Year saw global equity markets respond to the unexpectedly hawkish minutes from the Fed's monetary policy meeting on 15 December 2021.
The document revealed a sentiment among policymakers that an increase in US interest rates might be needed "sooner or at a more rapid pace" than they had previously anticipated. Consequently, the accompanying 'dot-plot', which indicates each policymaker's rate forecast, now suggests we might see three interest rate hikes in 2022.
In response, the financial realm promptly began to anticipate and factor in the possibility of the first increase happening as early as March.
This anticipation led to a significant drop in technology stocks. Elevated interest rates diminish the current worth of projected future earnings, known as the 'net present value' or NPV. Many tech firms, while currently not profitable, hold high valuations based on anticipated future gains.
Given their substantial tech presence, US equity markets, especially the Nasdaq, felt the brunt of the downturn by week's end. In contrast, European markets, like the FTSE-100, were somewhat shielded due to their minimal tech holdings. To illustrate, while the FTSE-100 has a mere 1.09% in technology shares, the S&P 500 boasts a significant 29.6%. This disparity underscores the advantage of our globally diverse portfolios. Although they haven't been completely unaffected by the tech slide, their diversification has moderated risks and volatility.
We recognize that such short-lived market fluctuations can be unnerving. However, remaining diversified and focusing on the long term are essential, as they pave the way for favorable long-term investment outcomes.
In the week ahead, we'll be keeping an eye on US & Chinese CPI inflation data, US retail figures, November's UK GDP, industrial production numbers from the UK & Eurozone, and the University of Michigan Consumer Sentiment index.