A Jumpy Week, and 76 Years of Perspective
Hoxton Blog • A Jumpy Week, and 76 Years of Perspective
This week began at record highs and ended a good deal jumpier than it started.
US shares touched fresh all-time highs on Monday and Tuesday, then wobbled on Wednesday and slipped back. The trigger was the bond market, where the US government's borrowing cost climbed to its highest level in almost twenty years. As ever, our job this week is not to react to the noise, but to put it in perspective, and there is plenty of perspective to be had.
Borrowing Has Genuinely Become More Expensive
Let us start with the one development this week that is worth understanding, because it is more meaningful than a typical headline. When people talk about government borrowing costs rising, part of that rise is usually just about expected inflation: if prices are expected to climb, lenders naturally ask for a higher return to compensate. That part comes and goes with the mood.
But there is a deeper measure that strips inflation out entirely and shows the true, underlying cost of borrowing. This is what the chart below tracks, and this week it reached its highest level since before the 2008 financial crisis.
Let us start with the one development this week that is worth understanding, because it is more meaningful than a typical headline. When people talk about government borrowing costs rising, part of that rise is usually just about expected inflation: if prices are expected to climb, lenders naturally ask for a higher return to compensate. That part comes and goes with the mood.
But there is a deeper measure that strips inflation out entirely and shows the true, underlying cost of borrowing. This is what the chart below tracks, and this week it reached its highest level since before the 2008 financial crisis.
Now, the Perspective
Markets fell this week by around one percent, a small setback that felt larger than it was because it interrupted a run of record highs. This next chart places that wobble against 76 years of history.
The line shows the US stock market since 1950, and the shaded bands mark every recession along the way. There are more than a dozen of them: the stagflation of the 1970s, the dot-com crash, the 2008 financial crisis, the 2020 pandemic. Each one felt, at the time, like a reason to give up on investing. And each one is now just a shaded band that the market eventually climbed through and left far behind, on its way from a level of 17 in 1950 to over 7,700 today.
Set against that, this week’s dip of less than one percent barely registers. It is a single pixel on a chart that spans three-quarters of a century. There is no recession shaded at the right-hand edge, because the economy is still growing. The uncomfortable truth about weeks like this is that they feel enormous while you are living through them, and turn out to be almost invisible when you look back.
A Quiet Reminder About Spreading Your Money
There was one detail beneath the surface this week worth mentioning. Even as the headline market held up, a large part of the gains was being carried by just a handful of very big companies, while many others were already struggling. A portfolio piled into that small group of winners would have looked fine on the surface while quietly carrying far more risk than it appeared to.
This is exactly why we spread our clients’ money across many companies, industries and countries, rather than betting on a narrow group of names. A well-diversified portfolio was never depending on this week’s winners to begin with, and, as the long-term chart shows, has always had good reason to stay invested through wobbles like this one.
What Higher Borrowing Costs Mean for You
These are not abstract numbers. Higher government borrowing costs feed directly into the cost of a mortgage, a car loan, or a business borrowing to grow. Borrowing that had already become more expensive over the past two years took another step up this week, and the signs are that this environment may persist for a while rather than ease quickly.
This is precisely the environment in which a long-term, diversified plan earns its keep. Leaving money sitting in cash feels safe, but with the cost of living still rising, cash quietly loses value, buying a little less each year. Money that is sensibly invested has the potential to grow ahead of rising prices over time, through the growth of shares and the income from the steadier parts of a portfolio. Getting that balance right, so that your money keeps and builds its buying power rather than slowly falling behind, is exactly the job we do for our clients at Hoxton.
The Timeframe That Actually Matters
Three weeks ago, the headline was oil breaking $100. Two weeks ago it was interest rates rising. This week it was borrowing costs reaching a near-twenty-year high, with oil still climbing and a trade meeting that disappointed. Each week has had its own frightening headline, and each has felt, in the moment, like the one that really mattered. Not one of them, on its own, has decided where markets will be in five or ten years, and this week will not either.
That is the real point of financial planning. We build portfolios spread sensibly across the world and across different types of investment, balanced to suit your goals and your comfort with risk, precisely so that no single week, however jumpy, can knock your plan off course. The headlines will keep changing. A good plan is built to hold steady through all of them.
Our Message This Week
Records early in the week, a sharp reminder that borrowing has become more expensive, a trade meeting that fell short, and an oil price that keeps climbing, together they tell a consistent story: the cost of money is higher than it has been in years, and markets are still adjusting to it. But a single jumpy week, set against 76 years that include more than a dozen recessions, is not a reason to change course.
The lesson is never to trade around the headline of the day. It is to hold a sensible, diversified plan built to absorb whatever the week throws at it, and to let time and patience do the work that no single headline ever can. As always, if you would like to talk through what any of this means for your own plan, we are here to help.
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