The last 3 years in markets have been a challenging time, first came COVID and then the Russian invasion of Ukraine, it’s hard to see the light at the end of the tunnel. Household consumption is the primary force behind economic growth and it’s been experiencing a difficult combination of soaring mortgage rates, increased living expenses and persistent inflation. Together, these things are causing a decrease in disposable income. These strains are likely to persist for a while yet and are causing the short-term fluctuations you might be seeing in your portfolios, depending on your level of share exposure.
The most recent escalation in geopolitical tensions has once again raised concerns about the global market’s future. However, unless there is a widespread international fallout, the impact will probably be limited. The recent attack by the Islamist group Hamas on Israel has sparked worries about potential market disruptions. Crude oil prices went up by four percent, raising concerns about further exacerbating inflationary pressures, much like what happened after the Russian invasion of Ukraine.
But, looking forward, the Israel-Hamas conflict isn’t likely to significantly alter the investment outlook, unless other nations become entangled in the conflict. In contrast to the market’s reaction to the Ukraine war, the Israeli conflict occurs within a backdrop of a more widespread decline in overall economic activity. At the beginning of the Ukraine war, consumers faced increased petrol prices, but due to savings reserves after lockdowns, along with low interest rates at the time, spending continued, which all contributed to skyrocketing inflation.
In the current situation, things are quite different. The initial boost from reopening is long gone, monetary policy has become restrictive and household finances are stretched to capacity. Consequently, the increase in petrol prices is more likely to dampen expenditure this time around.
It’s important to maintain a calm approach in this rapidly changing macroeconomic landscape. A well diversified portfolio is always key. While there is no guarantee that the market volatility won’t continue for a little while yet, it’s important to maintain the course and take a long term investment view.