As the second quarter of 2022 came to a close, US markets reported their worst half yearly performance since 1970, as rising inflation, higher interest rates, and Russia’s invasion of Ukraine created a challenging environment for investors.

Over the first six months of the year, the S&P 500 fell almost 20%, while the tech-heavy NASDAQ plummeted 29%.

In such an environment, few sectors performed well. Consumer and technology businesses have generally struggled the most, while energy, financials and healthcare were the top performers.

This has some similarity to the 1970s (when markets fell as inflation reached similar highs), noted Tony DeSpirito from BlackRock.

But “while the backdrop is different today, we do believe these three sectors could outpace the broader market once again,” he commented, “with financials potentially doing even better in this cycle, given stronger bank balance sheets after restructuring and rigorous stress testing in the wake of the Great Financial Crisis,” he added.

Last week, early gains gave way to larger falls, as the final revision of US Q1 2022 GDP data was downgraded on weaker consumer activity. Overall, the S&P 500 ended the week down 2.2%.

European shares also struggled, as headline CPI inflation in the Eurozone reached a record 8.6%. This was above expectations. The European Central Bank is generally expected to start increasing interest rates in the future, while the continent continues to grapple with its reliance on Russian energy fuel. In total the MSCI Europe ex. UK fell 1.26% over the week, while the German DAX Index and French CAC 40 both fell over 2%.

The FTSE 100 fell 0.6%, meaning that overall, the index was down 2.9% for the first 6 months of the year – a substantial outperformance compared to its US peers, partly thanks to the sector mix of the FTSE 100. This was despite a notable fall in June, as investors began to worry about the increasing likelihood of a recession.

These recession fears have grown louder in recent weeks, as a number of economic indicators have suggested Western markets are slowing down, thanks in part to reduced consumer spending and the rising cost of living.

Kristina Hooper, Chief Global Market Strategist at Invesco is not alone when she suggests: “While pandemic-driven factors continue to complicate cycle analysis, we nevertheless see higher inflation and slowing growth, indicating that we may be late in the business cycle. The remainder of 2022 is likely to bring a substantial slowdown in growth for major developed economies.”

“Whether the ultimate outcome is recession or stagflation, the implications for corporate earnings are clearly negative,” added Alex Tedder, Head of Global and US Equities at Schroders. “Margins are likely to experience pressure over the coming months as cost pressures become apparent and top-line revenue growth begins to slow.”

While the past six months have been difficult, and there is likely further volatility ahead, it remains important to retain a long-term outlook.

For active fund managers, volatility has the potential to create buying opportunities.

They will have thoroughly researched companies and analysed their long-term earnings potential. This will give them a good idea of what a company is worth, and how much they want to pay for shares.

With prices falling, more and more of these companies will be trading below this price, giving them the opportunity to buy. And while this might result in some short-term falls, it gives them the opportunity to buy future profits at a discounted prices, with the prospect of making even better long term returns.

While the short-term falls can feel uncomfortable, remaining invested is the best option.

As Darren Johnson, one of our Senior Investment Consultants, points out: “If you’d said in the summer of 2012, “I know exactly what’s going to be happening. The Eurozone crisis will go on for years. Brexit will happen. China will have a hard or soft landing depending on what you how you interpret it. We’ll have the biggest global pandemic in a century, the steepest economic decline in history, war in Europe, yet markets have grown substantially over this period,” most people would have thought you were mad. And yet, markets have done that despite these events – not because of, but despite of – these events.”

He adds: “The biggest probability of success is to remain invested. The biggest guarantee of failure right now would be to put your money in cash where inflation – which is currently hovering at 9.1% – will erode the value of your money away.”

Short-termism is something that’s hard-wired into our DNA, and we can be guilty of it all the time, in all areas of our lives. That’s arguably truer of the present than at any other time in recent memory, as we refocus on our financial wellbeing – and it’s entirely understandable. During a period of great fragility, marked by high inflation and market volatility, it’s hard not to fixate on immediate needs, at the expense of working towards long-term goals.

And yet we need to find a way to work past our fears and overcome our biases to avoid the temptations of short-term gains, certainly in the context of our investment strategies. A short-sighted approach to wealth creation will seldom yield the best results.

“The last thing you want to do is cash in your investments when prices have fallen, and then try to buy back in after they’ve bounced back up,” says Andrew Shaw, our Strategy & Communication Director. “When we suffer these market shocks, we first need to take a step back and consider whether we’re speculators or investors.”

History shows us that market falls are a feature of investing, and that volatility should be expected from time to time. However, while these short falls can happen relatively frequently, looking over the long-term, markets tend to rise.

So, rather than focusing on short-term fluctuations it’s more important to compare returns alongside a reformulated set of objectives. This means thinking in decades not days, with a goal or plan to guide us – and acknowledging that there will always be times when markets are more volatile. It also means avoiding changing a long-term strategy because of a short-term correction.

“It’s time in the market, not timing the market that’s key,” he points out. “Using an adviser as a sounding board can help us renew our financial choices – and prevent us from making poor ones – by bringing us back to our core priorities,” says Shaw. “They’ll remind us of the most crucial questions: what do we want to do with our money; and have our objectives or timescales for achieving those goals changed?”

“There’s no pressure. Like, why is there any pressure? I’m still 19. Like, it’s a joke. I literally won a Slam”

Womens Tennis player Emma Raducanu reminds viewers she is still at the start of her career, after being eliminated from Wimbledon last week.