Market Update April 2022

 By Chelsea Traver at Evergreen Advice

April saw negative performance spread across all asset classes. Inflation has been the prime driver of returns in 2022 and this month was no exception. The US and New Zealand released their inflation figures which were 8.5% and 6.9% respectively. This is the highest inflation has been in 3 decades. In an earlier article we explained what’s caused this inflation and what you can do about it, with this month further highlighting inflation’s significant impact on financial markets. Some say that this quarter may be the inflation peak, but we are far from out of the inflation woods.

This high inflation has led to speculation around how much central banks will need to increase cash rates to curb inflation. Investors are increasingly concerned about the limits to monetary policies at a time when supply chain disruptions pose a strong threat to inflation amid the war in Ukraine and China’s Covid lockdowns. In New Zealand, the RBNZ has been aggressive and delivered a 0.50% increase of the cash rate in April. The housing market has been cooling across the country with home prices continuing to fall. The RBNZ sees this as moving prices “towards a more sustained level”. Prices may continue to fall but a tight labour market likely provides a buffer against large drops.

Bonds in particular have taken a beating. Usually, they provide some support to total returns in a diversified portfolio however that has not been the case in 2022 as rising interest rates has led to negative bond returns.