The final quarter of the year was positive for most stock markets including our FTSE 100 which rose 7.45%. This compared favourably with other major stock markets and better than the NASDAQ’s 4.13% rise. The NASDAQ which is home to many technology companies has strongly outperformed over the last two years but more recently the share prices of older, more traditional companies have started to increase.
The FTSE 100 is home to many such companies for example BP, Royal Dutch Shell and many Utility companies. This trend, switching from tech to traditional or ‘value’ stocks may continue as tech stocks look fully valued.
On the economic front, the biggest change during the quarter has been that interest rates have started to rise. In December the Bank of England increased interest rates from 0.1% to 0.25%. Markets are expecting two or three more interest rate rises during 2022. This may happen fairly quickly now that effects of Omicron appear to be less severe.
There has been much debate about inflation and whether prices will continue to rise. Currently inflation is 5.4%. The Bank of England currently expects inflation to peek in April 2022 before falling back as supply disruption eases. However, growth in the US is very strong, putting pressure on prices globally. The UK jobs market is also very strong and wage rises are the strongest they have been for some years. The risk appears to be skewed to more interest rate rises than currently predicted.
UK Average weekly earnings growth.
One country where interest rates are moving in the opposite direction is China where interest rates fell from 3.05% to 2.95% last week. Economic growth in China was 4% in the last quarter of 2021. That is the slowest rate of growth in the last year and a half. They have a weak property market and consumption has been less than expected. This is certainly one of the risks for us to keep an eye on in 2022.