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.

MARKETS have reminded us that they don’t always move in a straight line. Having doubled since the March 2020 low, the S&P 500 had its worst performance in two months last week, down nearly 1%.

Investors’ optimism will be tested again in coming days as the focus on inflation continues. Consumer prices data is scheduled on both sides of the Atlantic. Inflation in the US is forecast to remain high at 5.3%. It’s less of a problem here in the UK, but price rises are likely to remain above the Bank of England’s 2% target.

Bond yields are on the up again - to 1.35% for the 10-year US Treasury - as fears grow that the Federal Reserve is getting ready to taper its pandemic stimulus. First, bond purchases will be pared back, probably from November, then interest rates will start to rise, perhaps as soon as next year.

Also in focus this week on this side of the pond, will be unemployment. It fell to 4.7% last month but there are still 1.6 million workers on furlough. What will happen to the jobless data when that support is removed this autumn and companies decide whether they are prepared to pick up the full tab to keep workers on?

The big market debate - where next for China? - continues to be in focus this week as Beijing ups the ante in its squeeze of big tech. It wants to break up Alipay, the payments app owned by Jack Ma’s Ant Group. China optimists say what’s going on is just catch-up with data privacy rules that are the norm in the rest of the world. But investors have been spooked this year.

The regulatory squeeze in China is an argument for on the ground analysis and stock picking. That active approach to investing looks increasingly out of favour, however, in light of new fund flow data showing the relentless rise and rise of low-cost, passive investing via exchange traded funds.

ETFs had registered $834bn of inflows globally by the end of August, outpacing the $762bn for the whole of 2020. Thanks to these flows and rising markets, ETFs now account for $9.7trn of global investment assets, more than twice the $4.8trn less than three years ago at the end of 2018.

On the company front, the new retail landscape is in focus this week, with online grocery delivery leader Ocado, updating on whether double-vaxxed shoppers are heading back to the supermarkets. The old world of department stores is in focus as John Lewis seeks to draw a line under an 18-month period in which it has shut 16 sites. On Friday, retail sales data are due.

Friday will also see full-year results from Manchester United. Investors will be looking for insight into the impact of the pandemic on the formerly money-spinning English Premier League, as well as details of the cost of luring back superstar Cristiano Ronaldo.

Five year performance

(%) As at 31 August

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
S&P 500 13.2 18.6 -0.9 24.0 26.3

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 31.8.21.

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. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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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