- Equity markets still unsettled - European small-caps fairing worst
- Could rising prices and slowing growth mean stagflation is on the way?
- Wheat and other commodities hitting new highs
Index changes
1 Week | 1 Month | 1 Year | |
FTSE 100 | -0.8% | -3.7% | +8.8% |
FTSE AIM All Share | -0.9% | -6.1% | -14.4% |
S&P 500 | +0.3% | -1.8% | +15.1% |
FTSEuroFirst 300 (ex-UK) | -4.0% | -6.4% | +5.6% |
S&P/ASX All Ordinaries | -2.7% | +1.0% | +5.4% |
Source: Stockopedia, London Stock Exchange
Equity moves
We’re now a week into Russia’s invasion of Ukraine, and the desperate humanitarian misery that’s unfolding there. It’s still too early to fully understand how and where sanctions and corporate action in response to the invasion will affect economies, supply chains, markets and companies - but they clearly will. The prices of oil and other commodities are already soaring in some cases (see below).
Naturally, it has been a volatile few days for global equities, with European stocks suffering the worst. On a six-month basis, the UK’s FTSE 100 is still in positive territory (+4.9%). But the US S&P 500 (-1.6%), Australian ASX All Ords (-3.4%) and FTSE Eurofirst ex-UK (-6.7) are all down (see chart below).
Smaller cap indices, which were already under pressure before the invasion, are suffering worst in Europe. The UK’s AIM All-Share, which currently counts ~765 constituents and is popular with private investors, is down 21% over six months.
The US S&P 600 Small Cap index is flat over the same period, while the Australian Small Ords index is down 7.5% - but there have been positive upward movements in recent weeks. The FTSE Developed Europe Small Cap index is down 11.5% (see chart below).
Much of the narrative explaining the drag on small-cap growth stocks in recent months has been around rising rates of inflation over the past year. Rates of 5.5% in the UK and 7.5% in the US are well ahead of central bank targets. But with such uncertainty caused by events on the edge of Europe, the theme now could be changing to “stagflation”.
Taking a step back… one very common view of regular inflation is that it’s a symptom of strong economic conditions and can actually drive economic growth. In these phases, holding stocks (which have earnings that can benefit from inflationary tailwinds) can make sense.
But at a time when prices are rising, but economic growth is slow or stagnating (and consumer sentiment is under…
