30th September 2022

According to Wikipedia, the term “Autumn” apparently came from the Latin word “autumnus,” with the root of the word meaning “the passing of the year.” But the term “fall”, which was likely a deviation from the Old English words “fiaell” and “feallan,” both of which mean “to fall from a height” may feel more appropriate after what has been happening in markets of late.

Of course, Autumn is the season when the duration of daylight becomes noticeably shorter and the temperature cools considerably. And this year more than ever we are beginning to think about the heating, or an extra jumper and what the future may hold. But one of the bright spots, consistent with all other recessionary periods, is the fall in many commodity prices we have been witnessing. This pattern looks like it might result in oil prices ending the year where they began at around $70-75 per barrel – the chart below, really makes interesting reading and one of the reasons that we say you should always consider both the past and the future when thinking about your investments. Otherwise, you can end up buying something that was a good investment at the wrong time:

Autumn is also the season of crops and harvest but there won’t be many taking profits in financial markets this year. With Central banks hiking interest rates again (this is being written in the last week of September) and yields on bonds continuing to rise as the Banks’ resolve to tackle inflation, the risks of a recessionary slowdown have clearly increased. Ultimately, the Bank of England and the US Fed need to see better news on inflation and although we are hopeful that this will be forthcoming, further rate hikes are expected before year end.

These rate hikes have also put equities under pressure as discount rates have increased and the markets begin to digest the likely impact of slowing growth and earnings. The question now seems to be how painful this recession may be, which could depend on how persistent inflation is, as rising prices continue to erode disposal incomes, and how high interest rates need to go.

On a more constructive note, it appears that gas storage is near full in Europe and progress has been made in cutting energy wastage and voluntarily restraining demand. Also, Germany has been able to build liquid natural gas terminals incredibly quickly which is also positive, as is the Ukraine moving to the front-foot in their war with Russia.

Meanwhile team Truss announced a mini budget, seemingly gambling that by pumping the economy to avert recession in the near term, the UK will muddle through. So in terms of our portfolios and the economy, we are wanting to hope for the best, but being prepared for the worst.

Time to throw another log on that autumnal fire.