How the stock market fared in Q3 2022, and why this could affect you

If you regularly check in on your investment portfolio, you might have felt worried about the market downturns that have occurred so far in 2022.

Indeed, the Russian invasion of Ukraine back in February, compounded with the ongoing Covid-19 pandemic, has caused volatility throughout the year.

In Q3 2022, such volatility has continued to occur in the global markets. JP Morgan reports that developed market equities fell by 6% overall this quarter, while global bonds fell by 7%.

The below table shows how global indices performed across Q3 2022.

Source: JP Morgan

On a positive note, inflation growth began to slow over the quarter in many regions, providing some hope for consumers and investors alike. However, interest rate rises across the west continued, sparking some further worry for borrowers.

Read on to find out how markets fared in Q3, and what this might mean for your investment portfolio.

UK equities fell in Q3, as key political events played their part in the wider economic landscape

With the sad passing of Her Majesty Queen Elizabeth II, the election of a new prime minister, and the former chancellor’s mini-Budget announcement in September, the UK experienced a series of market shocks this quarter.

Alongside the ongoing economic landscape causing a cost of living crisis, Kwasi Kwarteng’s mini-Budget announcement spooked many investors, causing the pound to reach an all-time low against the US dollar.

Consumer Price Inflation (CPI) dipped from 10.1% to 9.9% in the year to August 2022, sparking hope that inflationary pressure will continue to ease in the coming months. However, the rate then rose back to 10.1% in September.

The Bank of England (BoE) implemented two further interest rate hikes in Q3, taking the rate from 1.25% to 2.25%.

In addition, consumer worries about the rising cost of living meant UK retailers, travel, home construction, and leisure companies performed poorly overall. Indeed, JP Morgan reports that consumer confidence dropped to an all-time low in September.

On the positive side of things, unemployment dropped to 3.6% in July, its lowest level since 1974.

If a significant portion of your portfolio is made up of UK assets, it is important to remember not to panic; markets usually rebound, and selling while asset values are low could have a negative impact on your wealth.

For guidance on how to manage your portfolio’s risk level while UK markets are volatile, contact your financial planner.

The US Federal Reserve continues its fight against rising inflation, causing further market volatility

Throughout the first three quarters of 2022, much like the UK, the US economy has reported negative economic growth. What’s more, the University of Michigan’s consumer confidence survey has dropped close to its lowest level in 50 years.

Although some forecasters predicted the US would curb interest rises to focus on growth, the Federal Reserve (Fed) continued to focus on tackling rising inflation, raising interest rates above 3% in September.

Despite the Fed’s efforts, inflation growth slowed by just 0.1%, bringing the rate to 8.2% in the year to August 2022.

This seemingly poor result, along with other macroeconomic factors, led the US S&P 500 index to fall by 4.9% this quarter.

Fortunately, the tight job market in the US has boosted household wage growth by 10%, or $1.04 trillion, in the year to end of July 2022. This welcome rise was helped by a 5.2% increase in hourly wages, and a 4.1% rise in payroll jobs.

European markets continued to bear the weight of the war in Ukraine

Unfortunately, every sector in the Eurozone posted negative growth in Q3.

Much like the BoE and the Fed, the European Central Bank raised interest rates in August and September, while inflation for the Eurozone increased to an estimated 10% in September – up from 9.1% in August.

Of course, the ongoing war in Ukraine after Russia’s invasion in February 2022 has sparked a huge rise in energy costs across Europe, some of which are also affecting UK markets.

For guidance on how your European investments might be affected by the war, speak to your financial planner today.

If your portfolio has been affected by Q3 volatility, don’t panic

Most stocks and shares you hold are likely to have seen a downswing this quarter. If so, you could be feeling the burden of financial stress as volatility continues to affect your wealth.

However, it is crucial to remember your investment goals are long-term – so panicking when they perform poorly in the short term is often not necessary.

Indeed, research conducted by Nutmeg found that investing for any 10-year period between January 1971 and July 2022 would have generated positive returns 94.2% of the time. Whereas, if you held the same investments for any one year in that period, you would have yielded a profit only 72.8% of the time. If you invested over one quarter, your odds reduced to 65.6%.

So, in trying times for many investors, it is crucial to remember that time in the market is more important than timing the market.

Get in touch

If you have any questions about how your investments might be affected by global events, speak to your financial planner today. Email enquiries@prosserknowles.co.uk or click here to request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.