Economic Update - June 2022 Market Volatility

By
RJS Wealth Management Pty Ltd
June 20, 2022
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Our head of Investment Committee and Executive Planner provides a timely update on the significant share market declines, as the impact of rising interest rates and inflation both in Australia and Internationally is seen across global sharemarkets.

Recent volatility is no different to what we have seen historically. Although the trigger that causes the market movements may be slightly different. We provide a summary below of the current market conditions. It is important to consider that the results of the share market do not always mirror the performance of an investment portfolio. And that the information provided is of a general nature, focused on share market indicators as opposed to the performance of any investment portfolio.

 

Market Movements and Performance

 

The June 2022 interest rate rise triggered a large sell off. The S&P 500 (-5%), NASDAQ (-5.6%), Euro STOXX 50 (-4.9%), ASX200 (-4.3%). This extended what has appeared to be a ‘sell-off’ trend this year, as year-to-date share market performances trend slightly down. S&P 500 (-17.6%), NASDAQ (-27.3%) Euro STOXX 50 (-18.5%), ASX (-5.5%).


Asset class returns to the end of May are shown in the table below:

Asset Class Returns, as at 30 May 2022

Providing context to this correction relative to history, the below table shows that the US market is now officially a “bear market” meaning it currently sits 20% lower than its all-time highs. As you can see the current market correction is already larger than the average correction, meaning the major falls are possibly behind us. However, there have been corrections of a greater magnitude than the current one. Historically the extreme corrections previously seen are periods that have been associated with recessionary environments.

What is causing the sell-off?

  • Higher-than-expected US inflation data released last Friday has helped push equity markets down. Financial markets have reacted to the increasing fears that high interest rates will lead the economy into recession.
  • The US Fed meets tonight (Wednesday night), and the market is pricing an 80% chance of a 75bp hike. The rationale is they need to “get in front of the curve” and restore confidence that inflation will be subdued. There is a growing view the Fed has to choose between allowing inflation to stay high or triggering a recession.
  • This theme is probably particularly relevant to Australia given our relatively high house prices, debt levels and size of the Australian banks in the index.

What do the experts think of this?

The quote below from Blackrock is a great summary of our view:

“We see central banks ultimately opting to live with inflation instead of raising policy rates to a level that destroys growth. That means inflation will likely stay higher than pre-Covid levels. We also think the Fed will quickly raise rates and then hold off to see the impact. The question is when this dovish pivot will take place. We think the sum total of rate hikes will be historically low”.

Stay focused on the long-term objectives

Nothing in these market conditions causes any need to re-think the foundation of an investment strategy that is built on solid rigour. Share markets often move up and down, influenced by human behaviour. Over the long term, it can be expected that the share market will return to some form of stability and short-term market prices are determined by the reactions of many, to short-term problems such as rising interest rates, wars, pandemics etc. In the long run, asset prices are determined by the quality of the asset and its ability to produce returns and income for its owners. After all, markets don’t go up in straight lines!


Ultimately, share markets will continue their ebbs and flows as they always have, and recent movements are no different. We recommend investors look at the current state of play as an opportunity. As short-term volatility may create opportunities for long-term gain.


For more information on market volatility, please click the link below to view the SHARE MARKET VOLATILITY Fact sheet and if you have any questions or are not sure what action to take during times of market volatility, please contact an RJS Planner on 1300 27 28 29.

SHARE MARKET VOLATIVITY Fact Sheet

Got any questions? 

 

Unsure about what impact, if any, this will have on your financial situation? If so, please feel free to contact us to arrange a chat with an RJS professional:

We always recommend seeking personal financial advice from an RJS Professional before taking any financial action. Particularly in times of uncertainty.

 

If you have any questions about these insights or would like to speak to a Planner, please contact us on (03) 9794 0010.

 

Volatility can create opportunities for those who have a long-term view.

 

RJS Wealth Management Pty Ltd ABN 24 156 207 126 is a corporate authorised representative (No. 438158) of Modoras Pty Ltd ABN 86 068 034 908. Modoras Pty Ltd is an Australian financial services and credit licence holder. (No. 233209). Modoras Pty Ltd is located at Level 3, 50-56 Sanders Street, Upper Mt Gravatt Queensland 4122.

 

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

RJS Wealth Management Pty Ltd ABN 24 156 207 126 is a corporate authorised representative (No. 438158) of Modoras Pty Ltd ABN 86 068 034 908. Modoras Pty Ltd is an Australian financial services and credit licence holder. (No. 233209). Modoras Pty Ltd is located at Level 3, 50-56 Sanders Street, Upper Mt Gravatt Queensland 4122.

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

RJS Wealth Management Pty Ltd
June 25, 2022

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