Expressed positively, investing is about growing or preserving wealth. A negative framing might suggest that the point (maybe even the whole point) is to escape inflation’s corrosive effects on the value of money.
When inflation really took hold in 2022, it wasn’t immediately clear where the escape hatch was located. Not only were the inflationary shocks sharp, then dispersed and then self-reinforcing, but investors’ playbook had gathered dust after a generation of negligible official price rises. Precious metals, cash, commodities and even fixed income were all offered up as solutions. Equities, it was broadly (and initially correctly) assumed, would struggle as rising costs and uncertain demand sapped margins, and higher discount rates ate into capital values.
As is always the case in markets, it’s impossible to separate fair valuations from sentiment – even with hindsight. But what we can say is that equities have broadly recovered from their lows and risk appetites are improved – if tempered by a renewed awareness of the punishment inflation can inflict.