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.

INVESTORS are hanging out the bunting this week, not just to celebrate the Queen’s platinum jubilee, but because global stock markets have finally broken a record losing streak.

Finally, an up week

The S&P 500 added 2.5% on Friday to round out a 6.6% weekly rise, the best since November 2020, when vaccines showed investors some light at the end of the Covid tunnel. Nasdaq, whose tech stocks have borne the brunt of this year’s equity sell-off, did even better, up 6.8%. The rally in stock markets put an end to a seven-week run of weekly losses for shares, the worst string of declines for more than 20 years.

The main reason for the change of direction for markets seems to have been an easing of inflation fears and a consequent reining in of expectations about how far and fast US interest rates will go in this tightening cycle. A secondary boost may also have been provided by balanced funds re-weighting their holdings to shares after the recent decline in stock markets has left them with too many bonds and not enough equities.

Is the correction over then?

Maybe, but not necessarily. The slide in the S&P 500 from around 4,800 to 3,810 ten days ago has reflected a significant valuation reset but not yet a downturn in earnings. That remains key to the future direction of shares. If forecast earnings growth remains at the current 10% for this year and next, that could be enough to stabilise markets. After falling from 23 times expected to just 16, the valuation multiple of the US market has returned to a level which, while not cheap, is certainly not obviously expensive. It all depends on the extent to which inflation will raise companies’ input costs and curtail consumers’ willingness to spend. The oil price hitting $120 a barrel this week is a reminder that energy costs continue to squeeze prices higher.

What are we watching this week?

It’s a quiet week on the corporate front. As well as our two-day holiday at the end of the week, the US has a day off for Memorial Day. That leaves little room for company results, and it’s really only the fag end of first quarter earnings season now. FTSE 100 discount retailer B&M will probably be the highlight.

More interesting will be a string of inflation and unemployment data across the eurozone, with Germany in particular focus. Its forecast 8% year-to-May inflation rate will be a 40-year high, if delivered. That will be at the top of the range for European countries, with an average 7.7% inflation rate across the single currency zone being pencilled in. The question now is how the ECB will respond. Interest rates in Europe are still below zero but expected to be back in positive territory by the end of the summer on their way to 1.5% by the middle of next year.

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

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