MARKET INSIGHTS: MARKETS TEND TO DISREGARD UK ELECTIONS
As we have all noticed in recent weeks elections generate lots of headlines. So it might seem like an important consideration when making investments Vanguard have analysed the performance of a balanced portfolio of 60% UK shares and 40% UK bonds between January 1987 and May 2024. During that time, there have been 10 general election periods in the UK (including the election on 4 July). They looked at portfolio performance in the period from the five months before each election to the five months after and then compared this with performance during other times and found no statistical difference in portfolio performance!
They also analysed the performance of UK and global stock markets between January 1995 and December 2023, during which period there were seven general elections. The chart below shows that the elections had a minimal impact on stock market performance.
Assessing the implications of a new government and then trying to profit by timing the market rarely works, even for seasoned professionals.
Hopefully the above illustrates that planning with your long term goals in mind, keeping perspective and being disciplined are likely far more rewarding.
Hopefully the above illustrates that planning with your long term goals in mind, keeping perspective and being disciplined are likely far more rewarding.
Risks : Buying Investments can involve risk. The value of your Investments and the income from them can go down as well as up and is not guaranteed at anytime. You may not get back the full amount you invested. Information on past performance is not a reliable indicator for future performance. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. The views expressed here are subject to change without notice and we can’t accept any liability for any loss arising directly or indirectly from any use of it.
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UK INFLATION AND INTERET RATE EXPECTATIONS
I am sure you are likely aware of the Bank of England increase to interest rates from 2.25% to 3% yesterday.
We are often asked about Interest rate expectations given that many of our clients have mortgages.
It may be somewhat reassuring that the Bank of England expect key measures of inflation to fall moving forward.
Here a few interesting graphs:
Source: Bank of England
The UK is not alone in tackling inflation/interest rates
as can be seen here:
Source: Bloomberg Finance L.P. and Bank calculations
PUTTING LIFE ON HOLD COST OF LIVING CRISIS DELAYS HOME OWNERSHIP, HAVING CHILDREN AND RETIREMENT
In this issue we cover a number of matters – including how to navigate the higher rate tax freeze, why making plans for Inheritance Tax is so important, retirement planning, rising living costs and much more
Only by recognising and meeting your individual requirements can we have a positive impact on your life and business. This is why we provide an extensive range of services, plus the ability to tailor solutions based on your specific needs.
MARKET INSIGHTS: THE WEATHER IS CHANGING
The weather certainly feels like it has changed recently, hence I wanted to send an update on investment markets.
The battle against inflation has continued, Central Banks pushed through more Interest Rate hikes last month, the market barely flinched. Still firmly entrenched in Emergency Mode, interest rates will continue to rise until prices start to fall, which if course is going to have consequences for growth. A rate environment like pre-crisis is the most likely outcome, but there is going to be a fair bit of pain before we get there:
Inflation (CPI came in particularly high at 10.1%, with a 12.6% annual increase in food prices driving the reading above all estimates. This is up from 9.4% in June and marks the first time that UK prices have risen by double digits year-on-year since 1982. Given the implications this has for monetary policy, a sell-off in sterling-denominated assets followed, with the probability of a 75bp BoE interest rate hike increasing to around 30%. With further inflationary pressure expected from the energy price cap rises later this year, the outlook is left looking fragile, with the brutal squeeze on purchasing power far from over. While UK consumer confidence reading fell to a 50 year low on Friday coming in at –44, UK retail sales Ex Auto/ Fuel came in much better than expected at 0.4%.
The drought will no doubt exacerbate the problem further - farmers are finding life extremely challenging, with impending food shortage on top of ongoing energy disruption.
Thought this was quite a scary chart – REAL pay in the UK is falling at the fastest pace in 21 years.
Flash estimates suggested that euro zone GDP grew 3.9% year-on-year in Q2, below expectations and slightly down from the previous quarter. Inflation, on the other hand, remained persistent, with final HICP inflation at 8.9% for July as the region continues to suffer from the ramifications of Ukraine’s ongoing conflict with Russia.
In the month to July, US retail sales were unchanged, indicating that a degree of robustness remains among households. Unfortunately, the housing market is not displaying the same strength, with homebuilding squashed to the lowest level in over a year by high mortgage rates and construction material costs, muddying the country’s outlook. In line with these mixed signals, FOMC minutes were firm on inflation but acknowledged the wider economic implications of persistently aggressive policy. As a result, the committee resolved to continue hiking rates until inflation starts to decline but noted it may be appropriate for the pace of these increases to slow at some point, in order to assess their impact on the economy. This followed last week’s cooler inflation figure, which the market interpreted as a reduction in the likelihood of a 75bp September hike (measured at 40% post-release, down from around 50% before).
Equity markets are largely flat on the week while volumes remain low, having deteriorated throughout summer to the extent that movements are amplified. Earnings season is drawing to a close, with over 94% of the S&P 500 and 85% of EuroStoxx 600 now reported. Notably, although Target’s earning miss this week was not as bad as feared, following their earlier profit warning, it has renewed the focus on inventory and margin headwinds after the company was forced to slash prices to clear excess stock. As a result, it is possible that earnings estimates may need to be revised downwards in the coming months.
In China, the PBoC unexpectedly loosened monetary policy, cutting its medium-term lending rate by 10bps to 2.75% in an attempt to spur economic activity. This came after the announcement of surprisingly weak retail sales and industrial output growth as both consumer and business confidence have been depressed by COVID measures and the property market crisis. Now faced with structurally weak credit demand, evidenced by new yuan loans falling dramatically in July, policymakers are constrained by fears of stoking inflation. For now, in addition to the rate cut, Premier Li Keqiang has urged six major provinces to boost growth measures and balance COVID restrictions with economic performance whilst Chinese regulators look to guarantee bond issuance by property developers in an effort to buoy a systemically significant industry for the country.
Oil prices fell roughly 2% this week as the relatively weaker global economic outlook dampened demand while supply looks set to expand, with increased US shale production, rebounding Libyan production, and a potential nuclear agreement with Iran which would permit more oil exports.
There’s been plenty in the press about slowing annual house price growth. What if you were to lot a chart showing how many ounces of gold you need to buy a house in the UK? Prices are not as lofty as you might think in those terms.
Risks : Buying Investments can involve risk. The value of your Investments and the income from them can go down as well as up and is not guaranteed at anytime. You may not get back the full amount you invested. Information on past performance is not a reliable indicator for future performance. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. The views expressed here are subject to change without notice and we can’t accept any liability for any loss arising directly or indirectly from any use of it.
To discuss your financial requirements or obtain other information click below
Autumn Budget Statement 2021
Our guide
The Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget and Spending Review 2021(SR21) to Parliament on Wednesday 27 October 2021.
This Budget follows another year of extraordinary economic challenges as a result of the ongoing pandemic.
In our guide, we look at what the key announcements could mean to you, your family and business.
CORONAVIRUS
IMPACT ON THE GLOBAL ECONOMY
I hope you are managing well given recent changes in the way we live and work. In this newsletter we look at a number of areas to consider during this difficult time.
How can we help you further plan, grow, protect and preserve your wealth?
MARKET INSIGHTS: MORE UNIQUE AND COMPELLING OPPORTUNITIES THAN SEEN IN YEARS
Markets have begun plotting a path to recovery. Yet, the economy is in a dire state with significant uncertainty.
We work with you and the best investment management teams to achieve your objectives.
Hear directly from Morningstar who explain where they see opportunities ahead.
Risks : Buying Investments can involve risk. The value of your Investments and the income from them can go down as well as up and is not guaranteed at anytime. You may not get back the full amount you invested. Information on past performance is not a reliable indicator for future performance. This information is intended for educational purposes and should not be considered a recommendation to buy or sell a particular security. The views expressed here are subject to change without notice and we can’t accept any liability for any loss arising directly or indirectly from any use of it.
To discuss your financial requirements or obtain other information click below
FINANCIAL RESOLUTIONS
WELCOME TO 2020! WHAT ARE YOUR PLANS FOR THE NEW DECADE
What does Wealth look like to you?
We all have different goals and aspirations in life
EVEN THE SMARTEST PEOPLE GET IT GROSSLY WRONG
As you are undoubtedly aware, the U.K. election has been announced for December 12th. This is likely to be the biggest—perhaps only—talking point between now and Christmas, so I wanted to offer some substance behind our actions (or in this case, inactions).
Let us be clear, while these are uncharted waters, political uncertainty is nothing new. On this occasion, as in the past, people will jump over themselves to tell you the “right way”. Whether we are judging the merits of the candidates or working through our investment positioning, we must favour research over reaction and urge all our clients to do the same.
Chief among these is the temptation to react too quickly or with too much confidence in the lead up to the outcome of this significant event.
If you are cynical of this stance, I share the below quotes from the U.S. election and Brexit referendum, where even the smartest of people got it grossly wrong.
> Incorrect U.S. Election Predictions (U.S. stocks rallied 2.22% on the day after the election and around 9% in the three months following)
“We would expect a small global stock market rally if Clinton wins (about 2 percent) and a large decline if Trump wins (about 10 percent)”. Eric Zitzewitz, Professor of Economics at Dartmouth College
“The S&P 500 will fall by 3% to 5% immediately if Trump is elected”. Tobias Levkovich, Citigroup's chief U.S. equity analyst
“If investors are wrong and Trump wins, we should expect a big markdown in expected future earnings for a wide range of stocks – and a likely crash in the broader market.” Simon Johnson, professor at MIT Sloan and former chief economist of the IMF
> Incorrect Brexit Referendum Predictions (U.K. stocks fell 3.15% the day after the referendum but gained around 13% in the six months following. Economic growth also continued to rise)
“A vote to leave would tip our economy into year-long recession with at least 500,000 UK jobs lost”. George Osborne, served as Chancellor of the Exchequer under Prime Minister David Cameron
“Leaving Europe would tip the country into recession”. David Cameron, ex-Prime Minister UK
“Brexit would trigger recession”, predicted -0.3% GDP for Q3”. IMF Forecasts
“Short term impact of -1.25% GDP”. OECD Forecasts
“It would be likely to have a negative impact in the short term… I certainly think that would increase the risk of recession”. Mark Carney, Bank of England
> What about a Corbyn government?
Political biases aside, two of the widely quoted risks to investors seems to be in a Corbyn government or a hung parliament. It is easy to build an ugly bear case—no matter which scenario you look at—and we are mindful that the media will take full advantage of this fear-driven sentiment (they want to sell newspapers after all). We urge investors to keep a level head, and while these issues have substance, investors should look through media exaggeration as political risk is largely unpredictable.
It is for circumstances like this that we take a diversified approach. We don’t go “all in” on a given outcome, because we can limit the risks by spreading your eggs across multiple baskets. We have global exposure, defensive exposure and different currencies, to name a few, which would all help buffer any election risks.
Last, we leave you with a few key points.
1. The key question on many investors lips is whether they should sell, hold or buy. To our eye, the answer is simple… manage risks, stay informed and—if in doubt—stay the course.
2. Any turbulence in markets may create great opportunities to purchase assets that will add meaningfully to returns in the future. We are not there yet, but we will look at this opportunistically.
3. We appreciate that the current period is very unsettling for investors and will cause debate among your families. We will do our utmost to support our clients during this time.
CHOPPY WATERS, not ON FULL GALE
Some light summer reading regarding tax on a part of your savings, the economy, passing on wealth, and retirement longevity.
How can we help you further plan, grow, protect and preserve your wealth?
