It is possible that equity prices will continue to struggle in the near term if central banks send more signals that they are willing to raise interest rates further in order to control inflation. But without a significant economic downturn or recession (we are not expecting either), it is more likely that equity prices will resume their upward trend, rather than plunge. For what it’s worth, despite the easing in January, the composite activity PMI is consistent with equity prices staying above the levels of a year ago rather than falling much further. And as the pandemic fades further into the rear-view mirror, the composition of the UK equity market means it may benefit from a shift away from technology stocks to more traditional stocks.
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