Equities moved higher last week, as did interest rates (more info below). The Federal Reserve, having been at 0% during the COVID lockdowns are now, following 11 rate hikes, at a level of 5.25%-5.5%. The Bank of England is expected to join them at 5.25% later on this week as the UK grapples with one of the highest debt interest burdens in the developed world. Not to feel left out, the ECB raised for the ninth consecutive time on Thursday to 3.75% – a record high for the single currency bloc and a level last reached in 2001. The Bank of Japan also altered their ‘yield curve control’ mechanism, sending bond yields higher.
This of course has explicit consequences throughout investment markets and the wider economy. Some of you (admittedly the authors do not) will remember the high mortgage rates that characterised the 1970s and 80s. However, this does not preclude equities from strong returns – as were seen for the majority of that period. As mentioned in our recent Investment Outlook, once rates do settle at the terminal rate, companies have a degree of certainty and economic growth can stabilise. In conclusion during periods of higher inflation and interest rates, long term exposure to equities remains the best way for investors to maintain purchasing power and make real returns.
As always, if you wish to discuss anything in further detail, please do get in touch.