Market Update

Global equities endured a tumultuous week, grappling with the looming possibility of steeper interest rate hikes and geopolitical tensions.
There's growing chatter among economists suggesting the Fed might adopt a more assertive approach, potentially hiking US interest rates by 0.5% in March. This is in stark contrast to their earlier inclination towards two gradual 0.25% hikes spread over a few months.
It's worth noting that rising interest rates are especially detrimental for high-growth companies. These companies often rely on borrowing to finance their expansion, and an uptick in rates can erode the allure of their future profits. With technology stocks leading the downward spiral, US markets, heavily skewed towards tech, bore the brunt of the declines.
Although our portfolios felt the tremors of this downturn, the advantage of our methodical diversification strategy shone through. European and UK equity markets, leaning more towards value stocks rather than tech-heavy portfolios, weathered the storm relatively better. Additionally, the UK market's attractive valuation and compelling dividend yields compared to other regions, particularly the US, provided some cushion. Meanwhile, Chinese equities closed the week on a positive note, buoyed by the PBOC's decision to slash interest rates.
The geopolitical landscape further strained markets. The mounting tension between the US and Russia over Ukraine, coupled with North Korea's missile tests, Iran's nuclear ambitions, drone strikes in the UAE from Yemen, and the upcoming elections in South Korea, only added to the prevailing unease.
The road for equity markets is rarely without bumps, and we anticipate continued volatility until the geopolitical haze clears and the Fed offers more definitive guidance. We believe that the current market projection of four rate hikes, starting with a substantial 0.5% increase in March, might be a bit ambitious, especially in light of recent economic indicators pointing to a slowing US economy.
In the upcoming week, all eyes will be on the year's inaugural Fed monetary policy meeting, where we hope to glean insights into their stance on interest rate trajectories. The PCE, the Fed's preferred inflation gauge, will also be under scrutiny. Though a higher annual reading is anticipated, we're keen to see if monthly inflation shows signs of moderating.
Other data releases include PMI figures from the US, UK, Eurozone, and Japan; US housing statistics; US durable goods orders; and US Q4 GDP. We'll also be closely watching for the findings of Sue Gray's probe into Downing Street's controversial lockdown gatherings.