Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
Investors we speak to seem to view the current moment as a waiting phase: we are waiting for the market to reveal its next move. And we fear that move is as likely to be down, as up. Economic data tells a puzzling picture: on the one hand, the UK economy seems to be fairly strong, with retail spending holding up and unemployment still very low. The housing market is quite stable. But the corollary of this is inflation is remaining stubbornly high, with the gilt market implying the terminal rate of this hiking cycle is likely to be higher than feared and, therefore, a soft landing less likely. Overall, we think complacency is a real danger. The markets are still largely being driven by inflation data and we would be wary of assuming that the last move is the definitive move: there could be plenty of volatility to come and plenty of action demanded by central banks before inflation is tamed. This could easily lead to another leg down for markets and means that thinking about how our portfolios would react in falling markets remains important.
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