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.

IS THIS the nightmare before Christmas for investors? Markets are wobbling as we claw our way to the holidays, unsure whether we will get there before the Grinch snatches the festivities away.

Holland has shown the way, with a full-scale lockdown over the Christmas and New Year period, while Germany has joined France in pulling up the drawbridge to travellers from the UK.

It’s a tough end to what has actually been a pretty good year in the markets, albeit a more mixed bag than the headline level of share prices, especially in the all-important US market, might suggest.

Stock markets in the developed world have delivered returns of around 17%, with the cyclical, recovery-sensitive parts of the market leading the way. Energy stocks have soared on the back of a recovering oil price, while financials have benefited from the expectation of higher interest rates to come.

The more defensive parts of the market - consumer staples, healthcare and utilities - have lagged the overall market but still performed well, building on 2020’s rally from the pandemic low.

Shares have performed much better than bonds this year as investors have looked towards a normalisation of monetary policy next year. The Fed’s most recent meeting pointed to a faster than expected rise in interest rates once its bond-buying programme is unwound in the first quarter of 2022.

There’s been a strong regional element to markets this year. The S&P 500 has led the pack, 23% higher year to date. Emerging markets have been weak, down 6%, dragged lower by their most important constituent. China has held back from the kind of stimulus that boosted markets in the recovery from the financial crisis. It is more focused on social issues than supporting financial markets and investors have paid the price in 2021.

The outliers in performance terms this year have, strangely, both been assets that investors are looking to as safe havens in a more inflationary environment. Bitcoin has been the big winner, albeit with some sizeable air-pockets along the way, returning more than 60% this year.

The other traditional hedge against inflation, gold, has failed to shine, however. The precious metal is 5% lower than at the start of the year. Some blame cryptocurrencies for gold’s weakness.

Looking into 2022, inflation, interest rates and corporate earnings will be the key drivers of markets. The outlook for inflation is uncertain, with prices rising faster on both sides of the Atlantic than they have in decades.

However, markets are sceptical about central banks’ ability to normalise interest rate policy in response to spiralling prices. The Fed’s target of 2.5% interest rates within three years is higher than the level expected by futures markets.

Investors are betting that the Fed fails to deliver higher interest rates or is forced to backtrack when the economy proves itself unable to cope with a higher cost of borrowing.

The good news for investors is that the outlook for company profits remains positive, even if the rate of growth falls from this year’s remarkable recovery in earnings. Rising profits have kept valuations at reasonable levels so a forecast 8% improvement in profits next year could feed through directly into higher share prices. The market continues to climb the wall of worry.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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