Key market movements for the quarter
With the prospect of US interest rate hikes and simmering tensions at the Russia/Ukraine border, there were few places for investors to hide in January, as bond yields spiked and share markets waned. Growth-tilted sectors such as information technology and consumer discretionary bore the brunt of the pain, while the energy sector generally performed strongly.
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Headlines were dominated by the horrific war in Ukraine and the terrible humanitarian crisis continuing to unfold there. In pursuing this conflict, Vladimir Putin has surely etched his name amongst history’s most reviled.
The grave implications of the Ukraine conflict quickly fed through into increasingly volatile financial markets, with share markets declining and bond prices also generally falling over the quarter.
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An investor that owns a diversified portfolio of shares, some bonds and property, is already well positioned to withstand inflation over any reasonable time horizon.
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At times like these, the human brain craves answers. “When the world turns upside down,” Jason Zweig recently wrote in the Wall Street Journal, “starkly simple views are reassuring. Yet it’s at those very moments that investors need to be even more skeptical about takes that smack of certainty.”
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It’s not like gravity or even the weather. It doesn’t follow set laws. On any given day, the stock market represents the collective feelings of all of us. More often than not, those feelings are based on fear or greed. And it is only in hindsight that we recognize our mistakes.
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Russia’s invasion of Ukraine is an important reminder that geopolitical risk is a part of investing in global markets. Dimensional’s systematic active approach is designed to adjust to new information in real time, including information about geopolitical events and their potential repercussions for markets.
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Key market movements for the quarter
The quarter started on a positive note for most share markets which, aside from a November lull, mostly ended the year strongly. It was a slightly different story in bond markets, with a weak start extending to early November, and generally a small recovery thereafter.
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The fourth quarter of 2021 rounded out another year when developed share markets posted strong returns, despite ongoing uncertainties relating to global supply chains, inflation, interest rates and, of course, emerging variants of Covid-19.
Market performance continued to be driven more by supportive economic and financial data such as positive economic growth, low interest rates, and good corporate earnings.
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“What is your number?” That is the catch phrase of a popular advertisement that runs and re-runs amongst financial advising companies.
These types of campaigns are popular as many people will have a jolt of panic at some point just past mid-life, where they think, “Will I have enough for my retirement? I’d better get prepared.” Having a target ‘number’ can help you to understand just how big the mountain you must climb, really is.
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