Guide to an uncertain autumn in financial markets

Last July the Eurozone Finance ministers met in Brussels to discuss the challenges that the region would face in the last part of the year. One of the conclusions arrived at during the meeting was that the economic forecast for autumn was likely to be very complicated. Though Commissioner for Economy Paolo Gentiloni encouraged the public to remain calm by pointing out that Europe’s economy is still growing, albeit at a moderate pace, he also recognized that storm clouds could begin to gather over the continent in the final quarter of the year.

After a summer of highs and lows, marked by the recovery of the tourism sector (which seems to have left behind the lean years of the pandemic), but also by concerns surrounding the weakening economy and inflation (sparked by the war in Ukraine and the supply crisis), society is facing an autumn beset by uncertainty, with markets that still appear to be very sensitive to current events.

Against this backdrop, protecting personal finances has become a priority. As inflation skyrockets and the cost of living in Spain continues to grow, the way we formulate our investment strategies is becoming even more important than usual.

Ignacio Amo, MAPFRE Gestión Patrimonial’s fund selector, recognizes that investors are facing too difficult of a situation “to decide to take on even more risks by focusing on a single asset type or specific sector,” affirming that “diversification is the best way to protect our finances.” The claims made by the expert clearly show that attempting to focus on a single asset type or a specific sector within the current market situation is not, according to Amo, the best decision. In fact, most assets are generally demonstrating negative performance, with the exception of certain commodities (as well as energy) and businesses related to this sector:

Source: BlackRock Returns Map for 2022.

High levels of uncertainty are the norm and, in Amo’s opinion, they are set to stay that way throughout the next quarter. Before the summer began, one of everyone’s biggest questions was whether we would fall into a global economic recession. Three months later, warning signs of the recession have begun to appear in the United States: having entered a technical recession (two consecutive quarters of negative GDP growth), Ignacio Amo notes that this situation could set the tone for other major economies, along with fears of future stagflation that some experts are already beginning to dismiss.

This is just one more example of the climate of uncertainty surrounding the last quarter of the year and what it might mean for investors. “We're not even sure what the weather will be like next week, and there's certainly no way we can know what changes might occur with regards to the current conflict in Ukraine, world travel and trade, supply chain pressures, concerns about inflation, or the evolution of Covid-19,” stated the MGP funds selector, who also pointed out that history has demonstrated that “conflicts always come to an end, pandemics follow their course, consumption and trade tend to prosper and inflation can usually be kept under control within a set of expected margins.”

So it seems sensible to avoid short-term perspectives and not allow ourselves to be overcome by uncertainties, fear, and negative news cycles, as these should not affect decisions on investment. “It’s more important now to respect our investment time horizons. This climate of uncertainty is precisely the moment when receiving advice and trusting the added value of active management can make all the difference,” Amo affirmed.