Still, while Janet Yellen has expressed her desire to remain ahead of the curve in the US, Hambi warns that in the event that the Federal Reserve “gets too far behind”, the risk of a heightened inflationary environment followed by a period of sharp interest rate hikes will be “most troublesome” for equity markets.
As money managers know well, it is clear there will be plenty of tough conversations ahead if the macro picture remains cloudy, with inflation potentially making things even more difficult.
With sterling’s path unclear, inflation may well rise, but the Bank of England is not giving much guidance on interest rates.
To top this off, says Neil Cowell, head of UK retail sales at Vanguard Investments, it is important to remember there is not a straight relationship between any of these factors and bond markets anyway.
He adds: “The best way to add value for your clients is to remind them why they hold equities (long-term growth) and why they hold bonds (diversification and balance).
“Help them to tune out short-term noise and focus on what they can control. Have their goals changed? If not, why should they change their asset allocation?”
The topic of inflation will be explored in more detail in the forthcoming May edition of Portfolio Adviser, out soon.
