It has been a bleak start to the year as investors have had to contend with a range of depressing, and (in some cases) dangerous, possibilities for markets.
Blue Monday, which started the week, was the “most depressing day of the year” according to folklore, marking the end of the festive period and the return to everyday routines.
Some could make a case that Wednesday, with the prime minister under fire at his House of Commons questions and the release of scary inflation figures, was even more so.
Earlier this week I wrote how ‘Partygate’ – the name given to the Downing Street parties during lockdown – could hit a UK market that was finally showing signs of life in 2021.
The Brexit ordeal is over, the economy was recovering from the pandemic and shares were on the up – although not as much as in the US.
Stuart Clark, Quilter Investors portfolio manager, said the impact would be minimal if Boris Johnson were to leave office, but any signs of political tumult must not be ignored and investors will most likely start to vote with their feet.
This bleak start to the week was added to by inflation, which came back into focus (had it ever gone away?) when the Office for National Statistics revealed December’s figures.
Price rises hit a 30-year high in the final month of last year, reaching 5.4%, and there is little sign of it slowing down. If the forecasters are right and the peak will be in April, there are serious concerns that central banks will raise rates much more aggressively than is planned.
Already, Invesco global head of asset allocation research Paul Jackson said the market had implied a 98% probability of a rate hike in February, but the issue is that central bankers move to quickly, hiking at a time when the economy remains fragile.
It is unclear if a move next month would be cheered or feared.
For those unsure of what to do, Peel Hunt’s Anthony Leatham and Markuz Jaffe detailed seven alternative investment trusts that would remove the trials and tribulations of the stock market altogether.
Four private equity trusts were included for those who are confident the year ahead won’t be a disaster, while there were three ‘defensive’ funds for the pessimists in the room.
But it was not all doom and gloom. Eve Maddock-Jones wrote a mini-series this week looking at how the top managers of 2021 in the UK, Japan and Europe are tackling the coming year.
Most were optimistic, noting that these issues have been ongoing for several months and markets have (broadly) rode them out.
Abraham Darwyne also covered the fund flow figures from Calastone, which showed investors ploughed money into funds in 2021, particularly in the first half of the year.
With so much to think about, Cormac Weldon, manager of the Artemis US Smaller Companies and Artemis US Select funds, wrote that investors should take pause and avoid getting to emotional or pent-up over the ongoing issues.
“You might have been similarly bleak on Blue Monday in 2020. But, hey, two months later it got worse!”,” he said. Yet fast-forward to the end of 2021 and investors would have looked at a world where most major markets were well above their pre-pandemic level.
“Pessimism can be costly for investors,” Weldon wrote, which is true, and something I myself will try to remember. Being too negative on the world can mean missing out, particularly if – as we hope – things improve.