I can’t believe another quarter has come and gone in the blink of an eye but here we are at the start of July.
With all the excitement and anticipation surrounding the current England football team, it has made it somewhat easier to forget we are still in the midst of a global pandemic. That said, the UK economy is definitely benefitting from the football team progressing to the semi-finals of the Euro’s, with bars and restaurants getting back to what resembles full capacity. Will the current enthusiasm to get out and enjoy the frivolities only exaggerate the current rise in inflation? We will only see the effects of the Euro’s when inflation figures are released at the end of July but whatever happens, the hospitality industry definitely needed the boost.
House prices in the UK continue to boom with the end of the stamp duty holiday in sight, but, is this all about to come crashing down or will we see the prices carry on rising? Some analysts are predicting the housing ‘bubble’ to crash worse than the 2007/8 crisis and saying ‘even the smallest rise in interest rates could be catastrophic, while other analysts are predicting the growth to continue in certain areas around the country with working arrangements changing forever.
Stock markets, commodity prices, and cryptocurrencies all experienced a volatile May, first climbing strongly and then selling off sharply as inflation fears surged and then subsided.
Across the pond, headline US consumer price inflation came in at 4.2%, well above the US Federal Reserve’s 2% average target. Cars and food were the main inflation drivers with the 10% month-on-month increase in the price of second-hand cars contributing one-third to the overall increase in the Consumer Price Index (CPI).
The assets dominating the news and proving most volatile in May and June were the cryptocurrencies, with Bitcoin the highest-profile. The price in April had shot up to almost $65,000 when Elon Musk went public about making a $1.5bn investment into the world’s largest cryptocurrency. It then crashed after he criticised the energy consumption associated with its mining interests and announced that Tesla would be suspending payments using the Bitcoin token. After selling off to below $32,000, the price recovered a little to end the month at around $38,000. It remains more than 350% higher than a year ago.
Bonds are continuing to struggle with the 10 year Treasuries sitting around 1.47% and corporate bonds also showing the strain. Fund managers trying to generate income are trying to look at new ways of producing that income and is mainly in the form of dividends but that comes with added risk from equity investing.
The equity market doesn’t show any signs of slowing just yet but the warning signs are starting to show their heads and there could be a correction on the cards. That doesn’t mean we need to sell out of all positions and move to cash because we could miss out on a lot of growth over the next 3-6 months. As always, a well-diversified portfolio with cash allocated to certain time horizons will withstand most market corrections, and the old saying which I like to repeat ‘It is time in the market and not timing the market’.