Investors have had many causes for concern about returns in the past three years. Let’s take a look at 10 key events that have contributed to this volatility:
1. A massive global pandemic
The outbreak of Covid-19 in 2020 caused a global economic slowdown and market volatility, affecting returns on investments across all sectors.
2. The Federal Reserve added $4 trillion dollars to the US economy
At the time, this was generally considered necessary and had a positive effect but has subsequently created upward pressure on inflation and interest rates.
3. Reduced interest rates, including a 0% interest rate policy in the US, and negative interest rates in some parts of Europe
Low-interest rates can make it cheaper for governments to borrow money. While this can be beneficial in the short term, it can lead to increased government debt over time if borrowing is not properly managed. This can be harmful to the economy and financial markets in the long term.
4. Trade Tensions
Trade tensions between the US and China have escalated in recent years, leading to higher tariffs and greater uncertainty in the global market.
5. Inflation at its highest for 40 years
High inflation can be harmful to the economy and financial markets, as it can reduce purchasing power, create uncertainty and instability, reduce investment, increase borrowing costs, and harm international competitiveness
6. Geopolitical uncertainties
Global events, particularly those related to war, can lead to increased market volatility as investors become more risk-averse and seek safer investment options. The geopolitical tensions between countries have led to greater economic uncertainty.
7. Oil prices
In April 2020, the price of oil futures for West Texas Intermediate (WTI), a benchmark for crude oil prices in the US, fell below $0 per barrel, which is unprecedented in the history of oil markets. Covid -19 led to a sharp decline in global demand for oil as travel and economic activity decreased. Combined with a price war between major oil producers Saudi Arabia and Russia, there was an oversupply of oil in the market and storage facilities reached full capacity.
8. Crypto bear market
Cryptocurrencies have suffered massive losses since an all-time high in 2021.
9. Record amount of credit card debt – reaching over $900 billion in the US
Factors that contribute to this: Easy access to credit, low-interest rates and lack of financial literacy. High levels of credit card debt can have a negative impact on the markets by reducing consumer spending, increasing default rates, weakening financial institutions, and limiting the ability of companies to obtain financing.
10. Banking Crisis!
Banking crises can have significant impacts on financial markets, as they can lead to declines in stock prices, credit crunches, currency devaluations, government bailouts, and increased regulation – putting the banks under even more pressure.
These 10 key events have contributed to the adverse performance of global investments over the last three years. Whilst they have undoubtedly created challenges for investors, it is important to note that investments still perform well over a prolonged period. We recommend taking a long-term approach to investing and diversifying your portfolio to mitigate risks.