Inflation at 9.1 per cent, ouch. That’s the official CPI figure, as revealed by the ONS yesterday, but many of our readers may consider the rise in the cost of living to be even more acute.
For example, some favour the now non-official statistic but still used RPI measure, which was a stonking 11.7 per cent in the year to May.
Regardless of your favoured statistical or anecdotal inflation measure, it’s abundantly clear that this is making a severe dent in our wealth.
It’s having an even greater impact on some share prices though. The 15 biggest fallers on the FTSE 100 over the past six months have all taken a tumble of more than 35 per cent and the list includes some very big names Until recently, the FTSE 100 was broadly flat for the year, but the past week has sent it to a 5.5 per cent decline on the start of 2021.
That’s considerably better than the US stock market, however. The S&P 500 is down 21 per cent year-to-date and has tumbled into what’s known as a bear market –trading down 20 per cent or more below its peak.
Both those figures mask the pain inflicted on some previously high-flying company shares, however, and many investors may be looking at some painful declines among big name holdings in their portfolio.
Among the FTSE 100’s ten biggest fallers over the past six months are Ocado (down 50 per cent), investment trust Scottish Mortgage (down 47 per cent), Royal Mail (down 45 per cent), Ashtead (down 43 per cent) and Hargreaves Lansdown (down 42 per cent).
All of these may have been previous stock market high-fliers, but they aren’t exactly the kind of basket case companies that were chased up to crazy valuations by feverish investors, which the bull market was characterised as being driven by.
The US saw a sugar rush boom that the UK didn’t, but even allowing for that frenzy, across the Atlantic there are some higher-quality company shares feeling severe pain.
Amazon shares are down 36 per cent since the start of the year, Meta aka Facebook is down 52 per cent, Apple is down 25 per cent, and Google-parent Alphabet is down 23 per cent.
Some of the more speculative stock market darlings of recent times have taken an even bigger pasting: Shopify, for example, is down 72 per cent this year, as is Ginko Bioworks, while Netflix is down 70 per cent. Be greedy when others are fearful is one of investors’ favourite Warren Buffett mantras, but following through on that right now is tough All in all, the stock market is a volatile and scary place at the moment.
High inflation and rising interest rates are deeply unnerving investors around the world.
But why is that the case? Isn’t inflation a sign that an economy is running hot and shouldn’t that be a good thing for companies and their shares?
Meanwhile, we’ve been trying to get interest rates off the floor for years and although they are forecast to head higher, they will remain relatively low by historic standards, so why the worries?
To answer the first question, while a bit of inflation is a good thing, a heavy dose of it – such as the 9 per cent and rising level we are suffering in the UK – is not.
Economists and central bankers fear the vicious circle of inflation becoming entrenched in expectations: see the wage-price spiral chapter of your old economics textbooks etc.
All of a sudden central bankers have decided inflationary pressures that a fair few people warned them about in the pandemic didn’t turn out to be quite so transitory, so they are belatedly acting to try to bring things under control
What’s disconcerting markets is not just this action but also the sudden change in the mood music, from central banks.
Dating back even to before the financial crisis but certainly since then, there’s been widespread sentiment that central banks had your back.In the UK, this was largely considered in the context of homeowners and their mortgages, whereas in the US there was the idea of the ‘Fed put’ – if the stock market sank too far, in stepped the Federal Reserve to calm the waters with a dose of looser monetary policy or guidance.It’s now abundantly clear that this has changed, the Bank of England and Federal Reserve are much more worried about taming runaway inflation than they are about supporting homeowners or investors.The difficulty for investors is that while it’s possible to unpick what’s going on, nobody knows what happens […]
source SIMON LAMBERT: A new era of high inflation and rising rates is hammering investors, but is it time to be greedy when others are fearful yet?