It has been quite a week in markets as UK inflation hit record highs, Russia’s invasion of Ukraine continued and the chancellor made his eagerly awaited Spring Statement.
Starting with the latter, Rishi Sunak’s statement was a bit of a damp squib, particularly for the millions of people facing a cost-of-living crisis brought about by sky-high energy prices.
This was compounded by inflation levels last seen in the 1980s. You know it’s bad when the nation’s money expert, Martin Lewis, starts a tweet with: “if that's all he's doing…” in response to the chancellor’s statement. Ouch.
The cost-of-living crisis may cause many to tighten their belts this year. ISA allowances may be missed, but it has become more important than ever to invest.
Indeed, data from Moneyfacts shows there isn’t a single savings account or fixed-rate bond that can come close to matching inflation at the moment, making the stock market or other forms of investment the only place to potentially make a gain.
Yet at present this is particularly hard to do with the war in eastern Europe causing many to take pause. The financial impact of the war has been felt across the world, with every major market down year-to-date.
The MSCI Europe ex UK index is down the most (9.4%), with the MSCI Emerging Markets benchmark also dropping (4.8%). These two areas have the most direct correlation with the war, but other areas such as the UK and US have fared little better.
With less money in your pocket and the impact of war causing instability, now is a tough time to go full force into risky investments.
But it could be the right time to do exactly that. A month ago Brian Dennehy, managing director at Dennehy, Weller & Co, recommended clients unable to take the risk of markets to sell 50% into cash.
At the time I said I would be hesitant to do this. Since, the markets have rebounded, with the S&P 500 up more than 8% and the MSCI World index gaining 5.3%.
I am not here to call out whether he was right or wrong. Indeed, one month is very little data and this could change again a month from now, with markets dropping for any number of potential reasons.
Any further escalation in the war or inflation ramping up even further are just two possible pitfalls, while commentators also keep writing about how centrals bank could make a policy mistake at any time.
There are two schools of thought out there. Those that lived through the barren decades of returns from Japanese markets between the 1980s and 2010s, or the prolonged stagnation of global stocks in the early 2000s following the dot-com bubble, will tell you that there is a chance that markets will take years to recover.
Others will say that the market can rebound quickly, taking the global financial crisis and the 2020 pandemic as more recent examples of shocks that ultimately were short-lived.
Both camps have valid opinions and either could be proved right. For now, I will keep investing, as it is the only place I have a chance to make decent returns, but I understand that there is also a risk it will take several years for this to pay off.