Week ending 05 July 2024
New UK Government:
see our election special for our thoughts
Weekly Market Commentary
Week ending 05 July 2024
US markets up: reaching a record high by the end of the week.
Political uncertainty in France: resulting in under-performance against global markets.
Welcome to our weekly market update. Our focus is on providing clear, concise insights into stock and bond market movements and the broader economic landscape. 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. This is for your information only. It is not a recommendation or advice, if you’re unsure about anything please speak to your financial adviser.
Market Review
A shorter week for markets in the US, due to the 4 July holiday, but the US markets were up, closing at a record high. Equities (stocks and shares) rose following data which showed slower demand in services sectors and an easing labour market. A cooling economy increases the chances the Federal Reserve could ease interest rates in September. The S&P 500 has risen 16% in the first half of 2024 mostly supported by the largest technology stocks in the index.
President Joe Biden is resisting pressure to abandon his re-election campaign. While betting markets have increased the odds of a Trump victory, markets continue to be driven by economic data rather than politics. France is currently in the midst of a snap election for the National Assembly (the lower house of the French parliament). French stocks and bonds have underperformed global markets lately due the possibility of a new government shaking up spending plans.
UK election – what the result could mean for markets
UK markets were mostly unchanged following Labour’s victory – UK Sterling remained stable, which isn’t a surprise given the outcome was well predicted and the Labour party didn’t campaign with major changes to government spending. Despite the big shift in the political landscape, with a projected majority of at least 168 seats (not all seats have been declared at the time of writing) the spending constraints are the same. Low economic growth and high interest rates means that government spending can’t materially increase, and they can’t
borrow substantially more without breaking the rules and/or being held to account by a rise in government bond yields.
Our view is it’s the economy and changes to the economic outlook that drives equities and bonds. Limited policy changes mean limited economic and market impact. The Office for Budget Responsibility made it clear there’s no extra money to spend, and the Government has a lot to contend with – pushing the economy towards net zero, upgrading infrastructure, rebuilding middle incomes, and aging demographics –all of which mean spending.
In the near term, Labour’s large majority could bring political stability which could improve household and business confidence following years of divide in the previous Government. The UK faces weak business investment, low productivity, and higher costs from Brexit. An improvement in household and business confidence would encourage more investment and support economic demand at a time when Gross Domestic Product has grown slightly in the first quarter, the rate of inflation has fallen back towards the 2% target and cuts to interest rates look to be near, which would reduce borrowing costs.
Greater confidence in the UK recovery could support UK equities which have been fairly unpopular in recent times. The FTSE All-Share trades on a cheaper valuation relative to the S&P 500, although some of this difference reflects the valuations of a few US technology stocks. Even accounting for the sector differences, the cheap UK valuation reflects about UK company earnings.
Labour are able to build a consensus around a growth plan, we think it would allow the UK to increase spending to help address some of the structural economic issues. However, challenges to executing their ‘pro-growth plan’ remain –we don’t think UK political instability has vanished.
What this means for you
Changing political landscapes can bring short-term uncertainty to markets, but inflation and interest rates also play a significant role in the performance of them too. This is all continued evidence that maintaining a well-diversified, long-term thinking to your investment approach rather than reacting to market swings is key. By staying committed to carefully considered plans, investors can navigate through periods of volatility and uncertainty.
Has provided the commentary within this document.
Need Help?
If you have any questions in relation to this document, please discuss them with your financial adviser.. –we look forward to hearing from you.
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NOTE THE FOLLOWING
This guide is for general information and is not intended to address your personal and financial requirements and should not be deemed or treated as constituting financial advice. Nor does this guide constitute tax or legal advice and should not be relied upon as such. Tax treatment of investments and legal advice depends on the individual circumstances of each client and may be subject to change in the future. For further guidance on the matters discussed in this guide please speak to Shane Fox, who is a regulated financial adviser.
Our services relate to certain investments whose prices are dependent on fluctuations in the financial markets beyond our control. Investments and the income from them may go down as well as up and you may get back less than the amount invested. Past performance cannot be used as a reliable prediction of future performance.
SAMANTHA HAGON