Investor confidence plunged between August and September as a sharp rise in energy, food and household costs is sending jitters through the market.
According to the Hargreaves Lansdown Investor Confidence Index, confidence plunged 38% between August and September, while confidence in UK Economic Growth dropped 35% over the same period.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “A snapshot of investor attitudes shows that confidence has taken a knock amid a pile-on of worries about the economic outlook. Recent market volatility has hit sentiment and data showing that inflation is still proving very hot to handle for central banks is clearly proving disconcerting.”
Streeter said that high among the worries about the UK is likely to be the effect of soaring fuel bills on households and businesses and rapidly rising food prices. In addition, US inflation coming in much higher than expected and growing expectations that the Federal Reserve will raise rates by as much as 1% at the next meeting are also expected to have an impact on the global economy.
Streeter explained: “The euphoria of July’s bounce in shares which lifted investor confidence in August, has evaporated and although the S&P 500 largely treaded water during the last session, caution abounds. Investors have again been showing signs of fleeing ultra-risky assets like crypto and high-growth tech firms and heading to safe havens with the dollar gaining in strength.
“Realisation is dawning that the Fed is determined to keep pouring water on overheating prices for as long as it takes to cool them off, whatever the short-term cost to unemployment and the housing market. Expectations are growing that a softer stance in terms of monetary policy might not now arrive until 2024.”
Worries about the outlook for global growth had also put pressure on oil prices, although the price has recently started to climb again, as supply issues abound and the decision by the Chinese city of Chengdu to lift its lockdown leads to expectations of greater demand, with markets highly sensitive to the impact of Beijing’s strict Covid strategy.
Streeter said: “Economic uncertainty and market volatility can be unnerving for investors but tough times have been shown not to last forever and markets eventually recover. With inflation appearing to be stubbornly high and a recession looming there are clearly tougher times ahead for consumers and companies but it’s important for investors to think about their long term strategy and stay resilient when markets are jittery.”
Streeter noted that periods of volatility are part and parcel of investing and even during sharp short-term falls, regular investments often come into their own.
Streeter added: “By carrying on investing sums each month, you can take advantage of falls as well as rises through pound cost averaging. When markets are down, you’ll get more for your money, providing the potential for greater profits when they rise in value. We don’t know exactly what is around the corner but keeping calm and carrying on instead of impulsively selling might benefit investors in the long run when prices eventually recover.”
