Markets rallied last week, as investors weighed the prospect of central banks turning more dovish to combat rising fears of a recession.

So far, 2022 has been brutal for equity markets, as rising inflation and interest rates have caused a selloff in stocks, with the S&P 500 and NASDAQ shedding much of their gains from the past two years.

Technology ‘growth’ stocks have been some of the hardest hit, with family favourites including Apple and Amazon seeing large declines in their share price value.

Inflation continued to rise last week, with the UK’s Office for National Statistics revealing inflation accelerated to 9.1% in May, up from 9% the month earlier. The Bank of England expects inflation to break 11% in October, when the fuel price cap is expected to increase dramatically.

Despite the UK’s cost of living crisis worsening, the FTSE 100 climbed 2.7% over the week, while the FTSE 250 also climbed 1.1%.

In the eurozone, there was a similar tale of negative economic data being following by a rise in equity markets. Last week, a set of Purchasing Manager Index (PMI) figures – which are often used as a measure of business confidence – fell, with manufacturing sector especially hard hit. Yet the MSCI Europe ex. UK index climbed 2.4%. It is not unusual for economic data to lag behind market sentiment.

In the US, the S&P 500 climbed an impressive 6.4% over the week, while the tech-heavy NASDAQ jumped 7.5% – its largest weekly gain since March.

This came despite US consumer confidence, as measured by the University of Michigan’s sentiment indicator, slumping to its lowest ever level , largely due to surging inflation which has placed a considerable squeeze on disposable income.

Given recent headlines around the risk of recession, increasing interest and inflation, and an ongoing war in Ukraine, stock markets rallying at this time might seem counterintuitive.

The reason the market is behaving this way is because investors are hoping the risk of recession will see reduced demand, leading to lower inflation. As higher interest rates push down economic growth, there is also a hope that central banks will also be a little more conservative in their interest rate hikes than they might have otherwise been.

“Markets are still digesting the dramatic shift that began only a few months ago. Once the Fed has finished its “frontloading” of rate hikes, I suspect the environment will become less hostile for asset prices, especially higher quality credit but also equities,” suggested Kristina Hooper, Chief Global Market Strategist at Invesco. “If Western central banks can slow tightening later this year (they likely feel some pressure to keep up with the Fed) it would potentially help the asset price environment. A long-awaited moderating in inflation should also help,” she added.

“In the US, there are signs that demand is slowing and that some parts of the economy are seeing a build-up in inventories. Signs of easing price pressures and slower growth are necessary to get the Fed to suggest that enough is enough,” noted Chris Iggo, Chair of AXA IM Investment Institute and CIO of AXA IM Core. “Keep in mind that the Fed wants to get inflation back to target over the medium term but also to achieve a soft landing. That means it will pivot at some point, once the data shows the economy slowing meaningfully. Avoiding a housing market collapse or a financing crisis in the corporate sector is very much in the Fed’s thinking.”

He added that if the Fed is able to avoid a recession, equity returns could re-bound, and if inflation turns lower over 2023-24 it will be growth stocks that lead the way. “After all, labour market tightness, more aggressive unions, higher wages and supply chain issues make even more of a case for technology and automation,” he noted.

While this might all make for positive reading, it is important to remember the market currently remains volatile. With so much uncertainty, it’s important to remain well diversified, and ensure you are not taking any unnecessary risks in your portfolio.

While over the longer term, there are reasons to be optimistic that markets could begin to recover, the future is hard to predict, and the road ahead is likely to be bumpy.

Many young people want to save for the long-term but are thwarted more immediate financial concerns. While they may put off any thought of retirement planning due to more immediate financial concerns, from paying off student loans to saving for a house deposit, they may also find it difficult to think about the distant future.

People struggle to imagine themselves as old, which makes it hard to commit to saving into their pension. The result is that many find themselves short of money in later years, significantly affecting their financial wellbeing.

Future self-visualisation is a powerful psychological tool that can change this mindset. Elite sportspeople use it for motivation – for example, picturing themselves winning at the Olympics, hearing the crowd roar and feeling the triumph of achievement as they receive a gold medal.

As a long-term saver, you can use the same technique to picture yourself at an older age and imagine what it feels like to be free from any unwanted financial burdens. Once you have an understanding of your future self, visualisation creates a positive mindset. It helps to think about all the things you might do once you have achieved financial security in the future.

Allow yourself to sense what life could be like once you achieve your financial goals – conjure the images, colours, details and emotions in your mind. “Then think, ‘If I want these versions of my future, how will I afford them?’ Consider how you can give yourself options, so you’re not stuck when the time comes.”

You can do many small things now that will make a big difference long-term – putting money aside for emergencies and creating a savings bucket for medium-term goals will help you get into the savings habit. Talking to a financial adviser can help you decide where to start.

“Next year, the Triple Lock will apply for the State Pension. Subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s CPI which, on current forecasts, is likely to be significantly higher than the forecast inflation rate for 2023/24.”

Simon Clarke, Chief Secretary to the treasury confirms the Government plans to re-introduce the triple lock pension, despite the currently high rate of inflation.