Investors should brace for significant volatility in global markets this quarter, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The warning from deVere Group’s Nigel Green comes as markets tread water ahead of a week of key economic data, including the latest inflation reports for Germany and the US, providing more indications on the global interest rate path. The International Monetary Fund (IMF) will also release its latest outlook for the world economy on Tuesday.
He says: “Bond markets and stock markets are not singing the same tune currently.
“Bonds are suggesting a long and/or deep recession. There’s a growing worry that inflation is more stubborn than expected and this has triggered the inverted yield curve in bond markets. Yields are inversely related to bond prices.
“This is typically the sign of a coming recession – an inverted yield curve has emerged roughly a year before nearly all recessions since 1960.
“On this basis, stocks look overpriced.”
The deVere CEO continues: “However, despite a wobble with the recent banking crisis, stock markets are feeling pretty buoyant and appear now to be looking past short-term inflation squalls and are seeing the endgame of interest rate hikes on the horizon.
“Both cannot be right. This gaping disconnect between bonds and stocks suggests that investors should brace themselves for significant volatility this quarter in global financial markets.”
The predicted volatility will create opportunities for those who are willing to take on some risk. “By staying disciplined and keeping a long-term perspective, investors often benefit from periods of market volatility; indeed, they can prove to be highly rewarding,” says Nigel Green.
“We’re potentially looking at some serious buying opportunities for those looking to enhance their portfolios at a discount.”
Diversification will become an even more critical component of investment strategies in coming months, when heightened volatility is expected. By spreading investments across a range of different assets, sectors, and regions, investors can reduce risk, protect against market fluctuations, and take advantage of opportunities for growth.
“With bonds and stock markets delivering different messages about a possible recession, and its severity, investors should buckle up for a bumpy period.
“But, as ever, volatility can be used as a powerful strategy to build wealth in the long-term.”