Welcome, to the first edition of Fusion, Through the Confusion – market update.
We want to provide you all with an insight into our thoughts on the bumps and winds of the market, as it happens. So you can see how those thoughts and opinions develop into your portfolios and hopefully make those bumps less bumpy and the winding less windy. Strap yourselves in!
Taking Interest in the Bank Of England
The biggest change of late is the increase in the base interest rate for the country from 0.25% to 0.5%. We saw it coming, you probably saw it coming and pretty much everyone else saw it coming, including the market. So the eventual announcement has had very little effect on UK stock and share prices but a little bump for the pound, like the dollar did when they announced rate increases recently.
We call this being ‘priced in’. It is often thought that the market reacts around 3 months before the fact, though it can be caught off guard, which leads to some wild swinging. So now the market is looking to the future, what can it see? The biggest take that we can see from the recent announcement is that 4 of the 9 members of the Monetary Policy Committee (MPC – the guys in charge of picking the rates), wanted to increase the interest rate to 0.75%. So it was very close.
We can surmise that it is likely another 0.25% interest rate hike, is in their thoughts.
What Does This Mean for you?
An interest rate increase is often considered bad for growth shares as the cost of expansion gets greater. At the same time, it is great for banks, when their customers get more money for keeping their cash in the bank, so choose to keep more money in their savings accounts.
The road is unclear, but we very much suspect there will be a fall in growth share prices over the next year. The question is whether this is fast or slow in a market where still everyone believes that those big tech growth companies are going to keep on going.
Our thoughts are that change is coming in the short term and to invest accordingly to protect all the cash that has been made up until now but be flexible and vigilant for when things turn back.
What shall you do?
Not panic! There is likely to be some market volatility ahead. Things will go up, things will go down. We diversify portfolios and manage your risk levels to account for these times. There is a reason we review things every year, because it is important to let investments do what they do and then take stock, rather than watch the pounds tick up and down every day.
Any questions, please get in touch and I will be happy to discuss it. Not know how your pension is invested? Perhaps get in touch and make sure you are keeping them up to date!
The value of units can fall as well as rise, and you may not get back all of your original investment.
Please feel free to contact us if you have any questions.
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