Liontrust MA Quarter In Review Q3-2022 15.11.22 (Spreads) - Flipbook - Page 3
A positive catalyst for markets remains elusive as inflation and
recession concerns persist
• The negative economic and general news flow that is defining
2022 continued to hamper global financial markets throughout
Q3. The downward trajectory seen all year continued, with little
to cheer investors. The S&P 500 extended its poor start to the
year – its worst since 1970 – and by the end of the third quarter
was down c.25% year to date.
• While, with the benefit of hindsight, it is fair to say central banks
were overly accommodative at the start of 2022, they now walk
a tightrope between doing too much and too little monetary
tightening, with the lagged effects of monetary policy on inflation
and the economy more generally a potential source of policy
misstep.
• A positive catalyst for markets remains elusive. The war
in Ukraine grinds on, the energy crisis continues to worry
investors, especially its impact in Europe, and domestic political
uncertainties persisted with right-wing populist parties gaining
significant ground in Sweden and Italy.
• Headline inflation has continued to rise but we still anticipate it
will start to edge down from the peak later this year or by early
2023 as rolling base effects from Covid shutdowns, changes in
consumer behaviour and the recent energy price shocks work
through the system.
• Central bank activity gathered pace. The European Central Bank
hiked rates for the first time in more than a decade in July with
a 50-basis point (bp) move, following up with a 75bp rise in
September after data showed that the annual inflation rate surged
to 9.1% in August and the Federal Reserve raised interest rates in
September by another 75bps for the third time in a row.
• The future returns on equities and corporate bonds will depend
however on companies maintaining their robust earnings and
financial strength, which will be closely linked to the state of the
economy. Although the US technically went into recession in Q2
when data showed two successive quarters of negative growth,
Fed Chairman Jay Powell claimed this could not really be the
case given multi-decade low unemployment figures and buoyant
consumer spending.
• Elsewhere, the Bank of England raised rates by 50bps in both
August and September and deployed an emergency £65 billion
bond-buying programme to support gilts after a fiscally-loose
mini Budget announced by the new Conservative government
sparked a market backlash.
• Just how far monetary tightening will go is still a key unknown,
with the monetary medicine that has already been administered
having yet to fully emerge.
The negative economic and general news
flow that is defining 2022 continued
to hamper global financial markets
throughout Q3
• While a slowdown in economic activity is a broad worry, we feel
that a technical, ‘small R’ recession (two consecutive quarters of
negative growth) is more likely than a ‘real recession’ in which a
protracted slowdown occurs.
The war in Ukraine grinds on, the energy
crisis continues to worry investors,
especially its impact in Europe
The Bank of England raised rates by
50bps in both August and September and
deployed an emergency £65 billion bondbuying programme to support gilts
Liontrust Multi-Asset Funds and Portfolios Quarterly Report: Q3 2022 - 3