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.

HAS the winter wobble run its course? After a disappointing start to 2022, investors are hoping that still rising earnings and less stretched valuations mean we’ve seen the worst of the New Year correction.

January in numbers

With one trading day left, oil has risen by 17%. The energy rich FTSE 100 has just kept its head above water. Everything else has had a January to forget. The S&P 500 is 7% lower on the month, as is Japan. European shares are 6% down year to date. Emerging markets, which took a pasting last year, fell another 3%, with China 8% lower ahead of this week’s New Year break. Gold is yet to prove its anti-inflation credentials, down 2% on the month. Bonds have been no protection, also 2% lower.

Is it now in the price?

With just 17% of America’s leading companies now trading above their average price for the past 50 days, momentum is as poor as it’s been since March 2020. That suggests the market is looking oversold. Valuations have pulled back. A year ago, US shares were priced at 24 times earnings. Today that’s just 19. Given that low interest rates and central bank bond buying is estimated to have pushed those valuation multiples higher than they should have been, you could argue that most of the unwind has now taken place.

It’s all down to earnings….

As ever, it will be company profits that are key. Earnings are expected to rise 8% this year. That’s a bit less than we hoped a month ago but it’s probably enough to justify share prices at today’s level.  It’s a big week for three key sectors: oil, tech and pharma. With Amazon, Alphabet and Meta in the frame, the unwinding of the tech boom will be under the spotlight. Spotify, in the headlines for the wrong reasons, is reporting. ExxonMobil and Shell headline the oil results. And Sanofi, Merck and Roche will update on the outlook for healthcare.

…and the Fed

As important is whether the Fed can walk the tightrope - raising rates just enough to keep inflation in check but no more than absolutely necessary. Somewhere between four and seven rate hikes this year is the forecast. The fewer the better as far as the market is concerned. Other central banks will be in focus this week. Both the ECB and the Bank of England make rate decisions. A second consecutive monthly rise looks likely here, while in Europe it’s still wait and see.

Meanwhile - waiting in the wings

And finally, we are closer to discovering the fate of the Prime Minister following the delivery of Sue Gray’s report into Partygate. But the other known unknown, Ukraine, remains a work in progress. It is not obvious what the market reaction would be to an invasion by Russia. But until there’s some clarity, we should expect February to be volatile too.

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. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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