A Cloudy Crystal Ball

Are there better times ahead? We discuss tech stocks, inflation, Omicron and geopolitical tensions.

In the end, 2021 was generally a good year for investors, despite the pandemic refusing to go away. The New Year got off to an unsteady start, perhaps as investors decided to take profits in case Omicron turned out to be more damaging than feared. Tech stocks were particularly badly hit, despite Apple becoming the first company ever to attain a market capitalisation in excess of $3 tn. But a rally in the NASDAQ index over in the United States and an upbeat trading statement from Darktrace, a British/American information technology company specialising in cyber security seems to have brought the buyers back.

Could 2022 be as kind to investors? Most of the comment that crosses my desk has been generally bullish in nature, but then forecasters have a tendency to be optimistic. True, there is arguably little merit in trying to stand out against the crowd. There is an old adage that nobody rings a bell at the top of the market – or at the bottom for that matter. And Warren Buffett famously said that it is time, not timing, that makes a good investor. Still, it does no harm to reflect on what factors might affect sentiment.

Inflation remains in the news, with rising wage costs and energy bills forcing the cost of living higher. Analysts believe the peak has yet to be reached, though the general opinion is that the increase will moderate as the year progresses. The real fear is that interest rates will rise as a consequence and choke off the economic recovery that is already suffering from the rise in Covid infections brought about by the Omicron variant.

By the end of January we should be seeing the first of the full year results from those companies reporting to the end of the calendar year. Given the relatively good performance of equity markets during 2021, it is to be hoped that there are not too many disappointments. The pound has also performed well against the euro recently – surprisingly so, given the lack of any resolution over border controls in Northern Ireland.

With Covid still making headlines, geopolitical tensions over Ukraine rising, inflation continuing to cause concern, Brexit issues still outstanding and Boris Johnson, the UK Prime Minister once again on the front pages because of parties at No 10, forecasting the future feels particularly difficult. All of these uncertainties could be resolved satisfactorily, but for the time being it feels no more than sensible to maintain a flexible stance to investing.

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