Last week was very much a tale of two continents, with improving inflation figures in the US contrasting with a drop in UK GDP.

Outside of this, arguably the biggest news was the US midterm elections, where a predicted ‘Red Wave’ was expected to see President Joe Biden’s Democrats lose control of both the Senate and the House of Representatives to the Republicans. In the end, the Democrats managed to hold onto the Senate, although the Republicans look likely to win a small majority in the House of Representatives at the time of writing.

US equities fell when the initial results gradually filtered in on Wednesday, as financial markets digested the closer-than-expected race and the short-term uncertainty it was bringing.

However, by Thursday, market attention had shifted back to the familiar theme of inflation. That day, the US Bureau of Labor Statistics revealed that inflation of consumer goods and services had fallen to 7.7% in September. This was down from 8.3% in August and a high of over 9% earlier in the year. This has led to suggestions that US inflation may have peaked.

This encouraged hopes that the Federal Reserve may be able to slow down the pace it needs to increase interest rates in the coming months, and markets began pricing in a 0.5% rise in December.

Lower interest rates would make it cheaper to borrow, and therefore growth-oriented shares jumped. That said, gains were found across much of the US market. On Thursday, the S&P 500 gained 5.5%, while the more tech-heavy NASDAQ ended the day up 7.4%. This represented the best single day of trading in two and a half years. By the end of the week, the two indexes were up 5.9% and 8.1% respectively.

While this makes for encouraging reading, it’s important to remember markets remain in a challenging place. The US may still enter some form of recession this year or next. At the same time, it was only two weeks ago that the Fed was talking down the idea of ending its period of quantitative tightening (where banks look to reduce the amount of money supply in the economy, including by increasing interest rates).

Filippos Papasavvas, Markets Economist at Capital Economics, notes that a recession often follows periods of tightening, and that he thinks the US may experience one in the coming period. “Admittedly, we forecast a fairly mild US recession. But it’s not clear that investors are prepared even for that. So, for now we’re sticking with our view that equities’ struggles will resume, and the dollar’s rally will return,” he adds.

The US news helped spur equity markets in other economies as well. European indices trended higher, with the MSCI Europe excluding UK rising by 4.7% despite the European Commission revising higher its own future expectations for inflation on the Continent. Moving to Asia, the Nikkei 225 in Japan concluded the week 3.9% higher, thanks to improved investor sentiment.

One index that notably lagged was the FTSE 100, which fell slightly last week. This was on the back of GDP figures which showed the UK economy shrank in the last Quarter. This represented what many expect to be the start of a long recession in the UK.

However, Ben Gutteridge, Director of Model Portfolio Services at Invesco, suggests investors should look beyond just UK GDP when considering investing in large UK companies: “We have long argued that UK equities offer significant value, with good earnings momentum, in a now particularly lowly valued currency. It should be remembered that the fundamental strength of the FTSE All-share index is not simply determined by the state of the UK economy – less than 25% of the revenues of the Index are from the UK, with 75% from overseas. The FTSE All-share index is home to many world-class, internationally orientated businesses, among the leaders in their field.”

When we talk about saving and investing, we generally think of it as setting some money aside for the future.

Go deeper into it, however, and it becomes clear we’re talking about two quite distinct activities. For example, what do we mean by the future – next week, next month, next year or indefinitely? How much are we putting aside, where does it go and what do we want from it?

The answers to these questions tell us whether we’re talking about saving or investing. And it’s important to understand the difference.

Broadly speaking, saving is about putting money aside in the short term, whether it’s for a ‘rainy day’ buffer fund or to pay for something specific, such as a holiday, car repair or work on the home. It usually entails putting money into cash accounts that can be accessed at short notice.

But while cash savings are a vital part of our resources – financial advisers recommend aiming for three to six months of ‘emergency’ money, if possible – they aren’t usually suitable for longer-term goals, not least because cash tends to lose value to inflation over time.

This is where investments come in. Investing is about setting money aside and leaving it untouched so that it can have the potential to grow into a bigger sum, benefitting from the ‘snowballing’ effect of compounding. It involves taking more risk with the money you put in, but the ups and downs of markets typically even out over the long term (five years or more) although this cannot be guaranteed.

“Shorter term usually means not taking a risk and so saving into something more cautious or guaranteed, such as cash,” explains Tony. “For longer-term objectives, we’ll have greater risk tolerance by comparison as we have the time to recover from any volatility.”

In a perfect world, most of us would be both saving for the shorter term and investing for the medium term (six months to five years) and long term.

“This is where speaking to an adviser comes in, as they’ll help you to understand your short, medium and long-term goals, then consider the right balance for you between shorter-term savings needs and longer-term investment objectives,” says Tony.

“It hasn’t sunk in at all obviously. What an unbelievable effort from everyone to win the game. I am a bit speechless.”

England T20 cricket captain Jos Buttler, speaking after England beat Pakistan to win the T20 World Cup.