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The Cambridge Weekly – 10 January 2022


10th January 2022


The Cambridge Weekly

The Cambridge Weekly – 10 January 2022

January déjà vu

Although 2021 did not close with another ‘Santa rally’, December – and the year as a whole – generated some pleasing returns for diversified investment portfolios. Compared to 2020 (another strong year in performance terms), equity investors fared considerably better than bond investors. Overall, and across asset classes, investors have experienced a notably better pandemic than so many other aspects of society, and we cover last year’s returns in detail in the next article.

December 2021: capital market returns review

Christmas did not quite bring the hoped-for ‘Santa Rally’, but investors still received many happy returns in December. Equity markets wobbled during the month, but overall global equities climbed 1.6% in sterling terms. This capped off a strong quarter (and year) in stock markets, with the MSCI World index rising 19.6% in 2021. It means that, despite the well-known COVID scares and supply chain problems of the last 12 months, investors have fared well during the pandemic.

Fed hawks soar to their peak

Perhaps words really can speak louder than actions. That was the experience of capital markets last week, after the minutes of the FOMC’s December meeting emerged. The meeting itself brought a significant pivot in Fed policy: policymakers announced a faster reduction of its bond purchases (QE) and three interest rate rises in 2022. Markets reacted well at the time, with equities climbing higher into the end of the year. Now that investors know what was said at last month’s meeting, though, things are markedly different. The minutes showed everyone how hawkish the Fed really is, and it sent a chill through markets: The S&P 500 fell 2% last Wednesday, while the technology-heavy Nasdaq fell 3.3%, its worst day since last February.

More energy crisis in the pipeline?

Nowhere has the current inflation shock been as clear as in energy prices. UK households are facing a 50% rise or more in gas and electricity prices once caps are raised in April – which is expected to push overall price inflation to 6.8%. Similar price scares emerged across Europe last year, after supply threatened to leave large sections of the continent without power. Oil prices, meanwhile, soared by more than 50% in 2021, continuing the rally from the lows of March 2020. Rising energy costs have also increase inflation across the board – exacerbating supply constraints and pushing inflation to its highest level in decades. As such, the outlook for energy prices is essential to any inflation expectations in the short term.


Read the full commentary here