Market update: June 2022

June was a difficult month for the financial markets and had two faces. There was panic in the markets after inflation pressure in the US was much higher than expected. Unexpected interest rate hikes by central banks in Switzerland and the United Kingdom, among others, also caused significant fluctuations. In the second half of the month, however, a period of stabilisation arrived. For example, energy prices fell, giving the market some breathing room. China's COVID-19 relaxations also helped stocks in emerging markets. However, consumer confidence remained low. The expectation of a possible recession will be the most important factor for the course of the markets in the coming months.

Best fund performance in June 2022: UBS (Lux) Money Market Sustainable Fund -0.06%

Fear of recession dominates financial markets; lower inflation pressure and recovery of consumer confidence essential for positive returns in the coming months.

‍Stocks in developed countries experienced a volatile start to the month. This was mainly due to inflation pressure in the US (8.6% in May, YoY) and fear of aggressive interest rate hikes. The Fed raised the rate by 0.75% during the month to curb inflation and left the door open for similar increases in the future. The S&P 500 closed the month downwards (-8.4%), partly because there were no positive developments regarding the ongoing war in Ukraine. European stocks had a comparable month, with the Stoxx 600 falling by 8%.

Emerging market stocks performed better than those from developed countries. Chinese markets rose by 6% during the month, recovering some of the losses from the beginning of this year. This was largely due to the Chinese COVID-19 relaxations. However, other large stocks in this market suffered heavy losses, such as Samsung (Korea) and TSMC (Taiwan), both of which fell by 15%.

Yields on 10-year government bonds, which showed some signs of stabilisation in May, rose by 0.6% in the first half of the month. However, government bonds also cooled down quickly in the second half of the month. The US and German 10-year interest rates rose by 0.12% and 0.24% during the month. The ECB did not raise interest rates this month, while central banks in Switzerland and the United Kingdom surprised the world with unplanned rate hikes.

High-yield bonds and corporate bonds performed worse than government bonds as the risk premium for companies increased due to recession fears. Money market returns in Europe remain low (<0.5%), but may increase slightly in the coming quarters due to the interest rate hikes.

‍What does July have in store for us?

- Any peaceful solution to the war in Ukraine will be crucial to reducing market volatility.

- The uncertainty and volatility occurring in the market, and the underlying factors causing it, are very likely to persist for the upcoming period.

- The earnings season will provide much-desired clarity on the true health of companies. Furthermore, it will provide more insight into the impact of inflation on the business community.

Important dates:

- 13 July for the June inflation figures in the US

- 26 July Microsoft quarterly results

- 28 July Apple quarterly results

‍What does this mean for my plans?

‍Do not let the volatile market disrupt your long-term goals. Vive's investment strategies take the declining market into account. Ultimately, well-diversified portfolios are the key to long-term success. Consistently investing periodically during periods like this is crucial to benefit from falling markets. 

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