The end of 2023 saw positive news in markets, despite experts predicting doom and gloom for the economy at the start of the year. Inflation came in lower than expected and markets speculated that major central banks could cut interest rates through 2024. The Federal Reserve Bank set the table for as many as 3 interest rate cuts through 2024, whilst the Bank of England awaits further evidence that inflation will fall to the 2% target, and stay there, before lowering rates.
With many commentators suggesting that markets may be too optimistic about rate cuts this year, it is clear that the path to falling interest rates remains uncertain; both this and inflation will continue to dominate markets in the short term. So, what does this tell us about what we can expect in the coming months? The truth is nobody knows!
It is not possible to predict the short-term direction of markets and we can never know when they might fall suddenly, whether rallies will continue, and how long they will go on for, despite what headlines might say. Uncertainty in markets causes volatility and, as you might expect, the main factors that contribute to uncertainty are unknown events that cannot be predicted.
So, what does matter? We know it is important as Financial Planners to ensure that our clients are happy with the amount of investment risk they are taking within their invested portfolios. When we talk about risk, we generally mean the level of volatility within the portfolio, rather than the risk of losing all of your money. It’s really important to make sure this is ‘right’ for you as this, as well as maintaining a comfortable cash reserve, can make the difference between being able to accept market movements or not.
No matter what the forecasts are for the months ahead, our philosophy remains the same at Eldon – remaining invested in a well-diversified portfolio, appropriate for your circumstances, risk tolerance, and long-term goals, is what will ultimately lead to a much better outcome from an investment perspective, rather than trying to predict the short term and the unknown.