What happened to the gains experienced in 2022-23?
There are a few factors working together that are bringing down the value of investments. These include higher interest rates, investors’ increasing doubt over the powerful technology sector and some political instability.
Investor reaction to inflation remains a core reason for negative performance. As inflation remains high – even though there’s signs it’s moderating – it’s becoming clearer the higher interest rates we now experience will remain higher for longer. Previously, investors had some optimism that rates would start to fall in the short term (presuming inflation would come down).
This caused sharemarkets to wilt across August and especially September. The S&P/ASX 200 fell 2.1 per cent from July to September. Sharemarkets in the US also fell, with the tech-heavy Nasdaq Composite index down 3.9 per cent (in local currency terms) across the three months to the end of September. In addition, the bond market returned negative results both locally and internationally.
But inflation isn’t the only reason for this dip. The tech sector is especially important as it was a principal force boosting our investment returns earlier this year. And now, as excitement over artificial intelligence wears off, investors are increasingly concerned about overall future performance of the sector, bringing down its value.
Other economic, political and geopolitical factors also influenced how investors felt and therefore behaved. The Ukraine-Russia war continued, concern over potential US federal government shutdown persisted, and deep worry over China’s economic performance increasingly stressed markets.
We remain uncertain how markets will perform as 2023 becomes 2024. So we remain cautious of the possibility of recession and continue to diversify our investments to manage risk as well as possible.
Ed Tomlinson is chief investment officer at smartMonday