IN FOCUS6-8 min read

As inflation starts to cool, where next for markets?

Our Chief Investment Officer shares his thoughts on the past year in markets – and what might lie ahead.



Caspar Rock
Chief Investment Officer

Markets in 2022…

2022 was a tough year for both equities and for bonds. It was in fact the worst year since the 1930s for an equally-weighted portfolio of the two asset classes. The picture was slightly better for UK markets. UK shares outperformed those in the US for the first time in five years. This was driven by a small number of stocks, however.


Investors now expect inflation will head back down over the course of the year. But the real question is where it settles. Bond market pricing suggests it's heading back down to the levels we've been used to for the last decade or so. But many, including the Governor of the Bank of England, have warned that it may remain higher than this for a long period of time.

Growth and interest rates…

Economic indicators are clearly pointing to a slowdown across the G7. We will probably see recessions later this year. Interest rates are likely to continue to rise in the first half of the year, but they will most likely peak by the third quarter. Bond markets currently expect them to fall in the fourth quarter - but that is very much dependent on the growth and inflation outlook at the time.


Equities were pretty expensive at the start of 2022. We've since corrected quite sharply. Lower starting valuations tend to be associated with higher long-term returns – so prospects are probably better than they were a year ago. However, the journey will most probably be bumpy. Why would it be bumpy? Well, business surveys still indicate slowing activity and equity markets tend to struggle while these indices are in decline. Earnings expectations could also be a headwind. Profit forecasts for 2023 and 2024 have started coming down and could have further to fall. We anticipate margins will be under pressure in the current inflationary environment. These two factors lead us to think there may be opportunities to buy and increase equity positions at lower levels.

Government bonds…

Bond markets corrected very sharply last year. A year ago, a 15-year gilt (UK government bond) would have yielded about 1% to maturity. It now yields above about 4%. The value of that bond has fallen by around 23%. However, following these sharp moves across government bond markets, starting valuations have become more attractive.

Do reach out to your usual contact if you have any questions.

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.


Caspar Rock
Chief Investment Officer


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.