It’s been a January to forget for most investors. You’ve probably noticed if you’ve checked your KiwiSaver balance lately.
Most major markets dipped into correction territory late January, with the tech-heavy Nasdaq 100 down 19% at its lowest point. With bonds selling off too, there really was nowhere to hide. JUNO CEO + Founder Mike Taylor identifies his 5 reasons why investors have hit the sell button.
1. A hawkish US Federal Reserve
Inflation is running red hot in the US and with the economy at or near full employment, the Fed had to pivot. Expectations have shifted from no rate hikes until 2024, to nothing until 2023, to at least four hikes in 2022! All in the last six months.
2. Geo-political uncertainty
Europe is on the brink of war (a developing story at the time of writing) as Russian President Vladimir Putin attempts to reclaim “lost territories”. The prospect of an imminent Russian invasion of Ukraine has heightened alarm and this unrest in Eastern Europe is creating uncertainty for markets.
3. The new Omicron variant
This variant has wreaked havoc, with companies we follow regularly reporting 15% employee absenteeism. That’s further disrupted the stilted recovery we’ve had playing out in 2021. One need look no further than the Beehive to see that governments around the world are struggling, as we enter the third year of this pandemic.
4. The change in consumer behaviour
As the world went into an unprecedented lockdown in March 2020, consumer behaviour changed. We started buying more online. This accelerated an already strong tailwind. However, in the euphoria that ensued, many investors incorrectly assumed that this pattern was sustainable. It wasn’t, and while some of this shift is permanent, not all of it is. How many Peloton bikes or streaming subscriptions does one family really need? So as we closed out 2021, there was a bit of a come-to-Jesus moment as investors realised they needed to adjust those growth assumptions.
5. It was time
We don’t always need a reason. Sometimes, the market gets fatigued and needs a shakeout. We were overdue a correction. The S&P500 (the stock market index tracking the performance of 500 large companies listed on stock exchanges in the US) hadn’t had a 10% correction since the Covid-19 pandemic began.
So where to from here? It’s safe to assume volatility is going to hang around for a wee while, as we navigate our way through some of the points I have discussed above.
Rest assured we are not taking this lightly, feeling complacent, or saying, ‘I’ve seen this all before’. JUNO takes every market correction seriously, constantly asking ourselves the question, is this the big one? And if it’s not, which at this point we don’t think it is, how can we use this correction to our advantage?
However, during such times, cool heads do prevail and it certainly helps to have managed money through many of history’s turbulent times. If you’re nervous about markets or feel that your investments might not match your risk tolerance, please reach out to the team. We are here to support you.
Information correct as at February 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.