It’s often said that when America sneezes, the rest of the world catches a cold; in other words, its stock market is so dominant that whatever happens within the US has a knock-on effect around the globe.

At the turn of the year, the Federal Bank of America announced rising interest rates in the US and cut quantitative easing by up to 50%, which had a big downward trend on global stock markets; it’s likely you will have experienced this as fluctuations in the value of your investments in the first quarter of 2022.

What is causing turbulence in the US stock market?

The value of tech stock is big in comparison to the rest of the US stock market, so any fluctuation within that has a significant knock-on effect.

Its value has been negatively impacted because companies such as Amazon, Netflix and Tesla saw share prices soar during the pandemic, but rising inflation and interest rates have since contributed to a significant decrease.

Earlier this year, Facebook announced that its user numbers had decreased for the first time in history, causing a drop in its share price. Because so many people signed up to Netflix during the Covid-19 pandemic, the number of new subscribers has also fallen recently; as a result, their share price has dropped too.

How might this impact your investments?

As we discussed in an earlier blog Why Your Portfolio May Decrease Even If The FTSE 100 Index Has Gone Up, the value of a handful of large companies that dominate the FTSE 100 index has gone up, whilst the value of the rest of the mid and smaller companies has fallen. This imbalance leads to volatility.

For example, the following industries have experienced a significant increase in value:

• Oil companies. We have seen the price of oil rise from $60 per barrel to a peak of  $140, before dropping back to $100 (more on this shortly).

• Banks have gone up because interest rates have risen three times in the UK already this year; they’re making a better margin on what they charge people for loans and debt.

• Pharmaceutical companies have performed well as more than five billion people in the world have now received at least one Covid-19 vaccination. 

• Mining and mineral companies have enjoyed success as the world’s economies opened up and, in the UK, returned to pre-pandemic levels (so much so that the price of nickel had to be suspended a number of times as the price had more than doubled!).

What else is having an impact on the value of the stock market?

The war in Ukraine has led to increased volatility in the stock markets and a decrease in the share value of organisations with assets in and around the conflict zones. We hope and pray that a peaceful solution can be found to stop the suffering and the ongoing violence for the people of Ukraine.

Some of the volatility that investors are experiencing comes from the energy crisis because Russia produces 50% of the world’s energy. Over the last ten years, the UK has become less reliant on Russia for energy (28% of UK energy comes from a green source), so we now rely on it for approximately 5% of our energy; but Germany, for example, relies on it for half of its energy supplies. It will take time to implement change and for the positive effects of that to ripple out.

Rising oil and gas prices impact almost everything in the world. At a basic level, you need a tractor in order to harvest a field, and a lorry to take a product to a factory or to a train for onward transportation. All of this is impacted by the cost of oil rising from $60 per barrel to almost double (at the time of writing).

Hopefully, within the next six months there’ll be a resolution to the conflict for the people in Ukraine. The UK will have potentially phased out its use of Russian oil by the end of the year (as proposed by the UK government) which will help to reduce and stabilise oil and gas prices – which should, in turn, reduce market volatility.

What can you do to help protect your investments?

If you’re an investor, it’s wise to seek independent financial advice. At Applewood Independent we know that stock markets tend to recover over time; knee-jerk responses to cash in investments are more likely to lead to financial losses.

If you’d welcome input, expertise and experience from Applewood Independent, please get in touch by emailing me at david@applewoodindependent.co.uk, or Alex at alex@applewoodindependent.co.uk.

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.