Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Most of us are fair weather investors, if we are honest. We like it when volatility is subdued and share prices edge higher. If the big number at the top of our online investment account keeps nudging upwards, we don’t worry unduly what’s happening under the bonnet.

How different when, like yesterday, the FTSE 100 is down by a couple of percentage points and our notional net worth is falling. Funny how, on those kind of days, we can find something better to check than the value of our portfolio.

At the time of writing, the UK market has today regained its composure, picking up on Wall Street’s partial recovery last night. That’s a relief but, unfortunately for those of us who enjoy a smoother ride in the markets, the last couple of days might be a template for the rest of the summer. It’s time to buckle up.

The reason for this week’s heightened volatility is a two way pull for the global economy and stock markets. On the one hand (and with notable exceptions such as India, it should not be forgotten), there is real evidence that activity is picking up around the world as we get on top of the pandemic.

This morning’s contribution here in the UK was the first cut of first quarter GDP. While it showed a decline, of 1.5% compared with the previous three months, the month by month trend is improving fast. When you consider that Britain was in lockdown throughout the quarter, that is a resilient performance and growth in March points to a strong recovery as the economy really starts to open up from next week.

The latest data suggest the Bank of England is right to assume a much faster rate of growth this year than it was predicting only three months ago. The fastest recovery since shortly after the second world war might see GDP rising at more than 7% this year, albeit that’s from a low base thanks to the pandemic.

The UK numbers chime with data out of China this week, which suggest that demand for the raw materials of global growth is rising rapidly. The price of commodities like iron ore, used in steelmaking, and copper, a key component in a wide range of products, has soared over the past year.

And that is what is driving the other side of the two-way pull on markets - the fear of resurgent inflation. Economic growth is obviously a good thing. But if policymakers are so scarred by the experience of the pandemic that they allow the economy to overheat, then history suggests damaging inflation could be the unavoidable consequence of their caution.

The evidence from China is compelling. Consumer prices may be rising at less than 1% but the cost of the raw materials going into its factories increased by 6.8% year on year in April. That is the fastest pace of growth in three years and marks a dramatic turnaround from 2020 when so-called producer prices were falling for most of the year.

Today, attention shifts to the US where a buoyant economy as lockdown measures are quickly removed threatens a big upward shift in inflation expectations.

In America too, however, there is considerable uncertainty about the direction of travel for both the economy and for inflation. Last week’s non-farm-payroll employment report was notably disappointing, with far fewer new jobs created than economists had expected.

That prompted a senior Fed official, Lael Brainard, to call on the central bank to be ‘patient’ in its pursuit of extremely loose monetary policy. She said that, while the outlook is bright, there are still plenty of risks. And she added that one of the biggest of these was that recovery is curtailed by a premature tightening of financial conditions.

Investors don’t really know what to make of all these contradictory messages. And that is why markets have started to become choppy again. It’s only natural. Share prices have soared over the past 14 months and now investors are looking for the gains to be justified by the emerging data. On the one hand, company results are encouraging, but worrying references to rising costs are increasingly frequent features of otherwise positive results announcements.

During the Cold War, so-called Kremlinologists would pore over the minutiae of statements and speeches by senior Soviet officials. They were looking for hidden clues as to what was really going on behind the scenes in Moscow.

Today’s equivalents are the analysts digging deep into the torrent of economic data and corporate news releases to try and understand whether it will be growth or inflation that wins the ongoing tug of war. As long as it remains unclear, markets will be on edge.

So, what should we do as investors? Fasten our seatbelts for sure. Be well diversified, make sure we have a big enough cash cushion so we are not forced sellers if markets hit an air pocket, try and avoid emotional responses to big moves in the market and make sure we seek out opinions that counter our natural optimism or pessimism.

But buckling up does not necessarily mean stepping back from the market. Remember, the fears about inflation have been triggered by the strength of the economic recovery. That’s fundamentally good news.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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