No one needs to be reminded of how difficult it has been for investors and intermediaries to manage investment portfolios in the past few years.
While minor periods of volatility are part and parcel of the world of investment, the markets have experienced a significant number of shocks that have required investors to be more proactive in adjusting their strategies and portfolios.
Sky high inflation, aggressive central bank action, the aftermath of the Covid-19 pandemic – all of these factors have played a big part in producing these shocks.
In addition, the stability of the international system has been buffeted by a number of geopolitical conflicts, not least the wars in eastern Europe and the Middle East.
These political and economic headwinds have created an investment landscape that has been increasingly difficult to navigate.
But, to an extent, we have seen this trend reverse in recent months.
The S&P 500 has gained 11 per cent since the start of the year as central banks have halted their rate hiking cycles, while the UK stock market hit a record high of 8445.80 on May 15.
However, any positivity that investors may be feeling should be tempered by the challenges that remain.
We are by no means out of the woods when it comes to market volatility, so investors must ensure that their portfolios are poised to withstand the difficulties the geopolitical and economic climate could produce in the months ahead.
As a result, diversification remains important, but more on this later.
The headwinds that could drag on investment portfolios
Potentially the most significant challenge facing the world of investment is the outlook for interest rates, which vary for each of the world’s major central banks as they try to balance inflation with economic growth.
In the US for example, it looks like there are too many inflationary pressures at present for the Federal Reserve to consider cutting the base rate this month.
However, with inflation falling much closer to normality in the Eurozone, the European Central Bank recently voted to become the first major bank to reduce rates since its hiking cycle began to provide its economy some impetus.
The Bank of England looks set to follow suit at some point this summer, so market truisms would contend that currency and bond markets could undergo a period of uncertainty as interest rates are reduced unevenly across the global economy.
Meanwhile, events in the world of politics are also going to hold some significance in the second half of this year.
With major geopolitical players like Europe, the UK and the US all going through important election cycles, I expect there to be an uptick in volatility as investors anticipate and react to the results of these votes.
As the world’s largest economy, the outcome of the election across the pond is likely to have the most substantial impact on the performance of investors’ portfolios, and so will be of particular interest.
