Equity markets rallied hard during the summer, and while they may have jumped the gun given the plethora of issues facing the global economy, equity investors need to have some awareness that we could have a positive outcome, according to David Jane, multi-asset investor at Premier Miton.
Jane said there were pressing issues around energy supply and costs in Europe, inflation, and geo-political uncertainty. He added these issues could impact company earnings later in 2022, even if they had not in the earlier quarters of this year.
But he said that while the summer rally in equities may represent “the lull before the storm”, investors should also be mindful that a more positive series of outcomes could occur, and consider this within their asset allocation.
He said: “We shouldn’t underestimate the power of momentum, given some of the known issues will no doubt resolve positively. The expectation of a Fed pivot, and therefore rates being cut sooner rather than later is potentially a powerful force.
"We should know by now that liquidity trumps every negative, and if the Fed moves from tightening to loosening markets, it will no doubt continue higher. We are concerned that the market has jumped the gun somewhat and is rallying before it has properly discounted the higher structural inflation and weaker profit outlook. Despite this, we remain alert to the possibility that it may simply move on to another phase of liquidity-driven revaluation.”
david.thorpe@ft.com
