From Morningstar:

Inflation fears are beginning to ease, but investors still face significant risk and volatility. Amid the uncertainty, investors need to focus on the right asset classes and timing. US inflation levels cooled to 3.2% in November from a high of 9.1% in June. The UK market also shows promising decreases, having seen the biggest drop in inflation since the early 1990s.

While the UK has seen a significant drop in inflation, a recession has been confirmed, making the economic outlook uncertain. High inflation and energy prices are still concerns. The US economy, however, is expected to remain resilient in 2024.

From an asset perspective, investors are considering the best way forward. Alternative investments, such as renewable energy, remain attractive, with many companies offering inflation protection. Bonds, particularly in the UK and US, are showing signs of recovery and are offering true inflation protection.

In the equity markets, there are strong opportunities, but the success of large US tech companies has overshadowed weakness in other sectors. However, price/earnings ratios are improving, and the equity market picture remains balanced.

Key potential drivers of change and opportunity for equity investors include the energy transition, technological shifts, state intervention, and ageing populations. But geopolitical factors and upcoming general elections could bring about market volatility.

While headlines and political uncertainty may weigh on investor sentiment, it’s important to stay focused to pinpoint businesses that will continue to generate strong cash flows and investor returns. Bhavin Shah is a multi-asset portfolio manager at Newton Investment Management.



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