SNAPSHOT2 min read

Market update – February 2022

Markets have become more volatile as investors weigh up higher interest rates and geopolitical risk.


Equities worst January since 2016

Markets have not started the year in the same buoyant mood they spent much of 2021. The MSCI All Countries World Index fell 5% in January. Bonds also suffered, taking yields to the highest levels since before the pandemic. The anxiety is primarily driven by concern about inflation and rising interest rates. While growth sectors most sensitive to interest rates and liquidity conditions are bearing the brunt of selling pressure, volatility has become more widespread. Geopolitical risk is also a worry, with Russian forces still threatening Ukraine. More encouragingly, the Omicron variant appears to be evolving in line with more optimistic forecasts. It now looks as though the latest – and hopefully final – wave of the pandemic may have peaked in the UK.  

Markets spooked by hawkish Fed

At its latest press conference, the Federal Reserve provided little reassurance to investors worried about the pace of rate rises, with Jay Powell suggesting there is “quite a bit of room to raise interest rates without threatening the job market.” Expectations of rate rises have moved higher since the start of the year, with markets now pricing in five US rate hikes this year. On balance, we expect a slower pace of policy tightening as inflation starts to cool over the coming months. However, inflation is set to remain a key focus for investors – and may well become more of a political issue as the US heads to mid-term elections in November. In the UK, we expect the BoE to raise rates again this month and then remain on hold, especially after the government confirmed plans to raise National Insurance in April.                               

Escalation looks more likely in Ukraine

Whatever Russia’s strategy in Ukraine may be, it does not appear to depend on the element of surprise. Time and international support have allowed Ukraine to bolster its defences, which could act as a deterrent to a Russian attack. However, this also raises the risk of skirmishes that escalate into a larger confrontation and bring the US and Russia into conflict. Sanctions against Russian banks and companies, and potential disruption to Russian energy supplies, could both impact many other economies and markets. Higher energy and food prices could also complicate central banks’ efforts to bring inflation under control. 

Portfolio positioning

We remain comfortable with our allocation to equities, despite recent volatility. We still expect robust economic growth in developed markets as well as continued earnings growth. Our base case remains that central banks will be able to tighten monetary policy at a controlled rate and manage the impact on economic growth. Encouragingly, recent volatility does not appear to reflect concerns about growth, given that more economically-sensitive areas of the equity market have performed relatively well. However, we expect that volatility could remain elevated over the coming months as markets grapple with the evolving monetary policy outlook and geopolitical tensions. We therefore remain focused on ensuring multi-asset portfolios have the right level of “defensive ballast” – including exposure to gold, bonds and other diversifiers.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.