Market Update

This week was characterized by a tumultuous whirlwind of events, primarily driven by speculation around the pace of the Fed's interest rate hikes and growing geopolitical concerns surrounding Ukraine. This resulted in several dizzying intra-day swings in the market.
For context, on Monday, 24 January 2022, the US S&P500 index concluded the day with a seemingly modest gain of just over 0.25%. However, considering it dipped by 4% during the day, this modest gain represents one of the most dramatic market comebacks in history! Similar volatile patterns emerged throughout the week, yet the index managed to wrap up the week with an overall gain of 0.77%.
This week's Federal Reserve meeting held significant anticipation, given the evolving landscape of interest rate expectations since their last assembly in December. As anticipated, the Fed maintained its rates, with the Fed chair, Jay Powell, indicating a potential hike come March. But the tone of the announcement and subsequent press briefing leaned more hawkish than anticipated, suggesting we might be on the brink of more substantial interest rate hikes. Consequently, markets now anticipate, and have factored in, up to five rate hikes this year, possibly starting with a 0.5% rise in March.
It's essential to realize that while the Fed must demonstrate its capability to manage inflation, it's equally crucial to remain adaptable. If economic growth plummets— a possibility if the Fed acts too aggressively, considering diminishing fiscal stimuli and climbing geopolitical tensions— the planned rate hikes might need a revisit.
Another pressing concern is the escalating tension in Ukraine. Given Russia's significant role as an oil and gas supplier, any military intervention or imposed sanctions could spike oil prices. This would compound existing inflationary concerns and further diminish disposable incomes. With consumer expenditure driving a substantial portion of both the UK and US economies, the implications are evident.
Given this backdrop, it's likely that market volatility will persist in the immediate future. While such uncertainty and unfavorable news can be disconcerting, it's imperative to resist impulsive decisions and retain a long-term perspective. We remain optimistic about the potential of global equity markets.
In the upcoming week, attention will be on monetary policy decisions in the UK and Eurozone. We wouldn't be surprised if the BoE decides on a 0.25% rate hike, bringing it to 0.5%. Other data to monitor include US ISM figures, US employment stats, Eurozone CPI, and Chinese PMI.