WeeklyWatch – Shoppers to the rescue

02 December 2019

Stock Take

S&P 500 clocks new record high

American shoppers look set to deliver the usual pre-Christmas boost to sales – last week volatility across US stocks fell to a one-year low and the S&P 500 clocked a new record high.

Not only that – new figures indicated that household spending picked up in October, and that consumer spending has been driving US GDP growth far more than in the previous few quarters. A key measure will be the data for Cyber Monday (today), when US consumers are forecast to spend $9.4 billion…and when the US shopper duly delivers, the financial world breathes a collective sigh of relief.

Indeed, it seems that there are plenty of deals to be had just now. Last week the Abu Dhabi government agreed the sale of a 10% stake in Manchester City Football Club to Silver Lake, in a deal that values the Premiership title holders at $4.8 billion, making City the most expensive sports club in the world. Meanwhile, LVMH secured the purchase of Tiffany & Co., yet that was just one among a spate of deals that day; deals that added up to $70 billion!

Financial group versus music royalty

Taylor Swift wasn’t talking about the stock market when she wrote the lyrics: “Well, I don’t know how it gets better than this”, but last week, she could well have been.

The line is currently an ironic edge to her title as the ‘Artist of the Decade’, presented to her at the 2019 American Music Awards last week. Despite the accolade, the singer is in the curious position of trying to persuade Carlyle Group to use its position to enable her to perform her own back catalogue: not the kind of politics the US financial group might have imagined getting embroiled in when it helped sell Swift’s former record label to manager Scooter Braun.

Political tensions

Amid this musical turmoil, global tensions largely played to the political tune last week. After the Hong Kong Human Rights and Democracy Act easily passed through both houses of the US Congress, Donald Trump was left with little choice but to sign off on a shift in the US’s treatment of Hong Kong.

The bill obliges the White House to verify annually that the legal and administrative systems in Hong Kong are still distinct enough from those of mainland China to ensure separate treatment in both customs and economic arrangements. If not, there is a stick in the form of sanctions, although it is highly doubtful that Donald Trump would ever wave it. Still, the move is hardly likely to please Beijing at a sensitive point in trade negotiations.

George Luckraft of AXA Investment Managers, Manager of the St. James’s Place Diversified Income fund, said:

“China might play a longer-term game than Trump wants, which might provide an unpleasant surprise for markets in the coming months. That said, it might be dangerous as investors get more optimistic that a deal is going to be done. But legacy is Trump’s priority and he is likely to ultimately want a deal.”

Stock indices worldwide were torn over which direction to take, as hopes of continued economic growth were weighed against ongoing US-China trade tensions. Two of the world’s most trade-sensitive major economies were certainly feeling the heat, albeit for a range of reasons. Japan’s recent tax rise and super-typhoon sparked the largest monthly drop in retail sales the country has suffered in recent years while, in the eurozone, business climate and sentiment indicators were increasingly negative. Such frail indicators can raise alarm bells for some investors.

Election and Brexit rules UK stocks

On home soil, while stocks were partially influenced by global developments (the FTSE 100 posted a four-month high midweek), the focus was on election season and Brexit.

It was not just polls that suggested momentum is with the Conservatives – they were also helped by some of the economic statistics. The European Commission’s Economic Sentiment Indictor (ESI) pointed to stabilisation, while a mild improvement in consumer confidence should surely help the Tory cause. “Despite the growing likelihood of a Conservative majority, sterling has only edged higher in recent weeks,” said Capital Economics last week. “We think that the pound could rise further if the party wins a majority, but that its stance on Brexit limits the upside for now.”

In UK corporate news: De La Rue, the banknote manufacturer, halted its dividend, and the impact was quickly felt on the share price; Uber lost its London licence; and Npower announced it would be cutting 4,500 jobs. But amid the negative headlines, some investors will still see opportunities.

Wealth Check

As the average life expectancy increases, retirement funds are having to stretch further and further. Today, a 65-year-old man in the UK has, on average, another 18.6 years of life ahead of him, while 65-year-old women will live another 20 years plus.1 We’ve previously discussed how to plan for the 100-year life, yet according to new research from St. James’s Place, one in four retirees underestimate the amount of income they need, and almost half are unable to fund care in later life.2

The decline in final salary provision and the relaxation of pension rules mean more people are retiring without a robust plan in place, increasing the potential for spending beyond their means and running into difficulty. In the last financial year, 48% of pension plans were accessed without advice or guidance.3

Claire Trott, Head of Pensions Strategy at St. James’s Place, commented:

“It’s difficult to know when, or how much, you should withdraw from your pot, and this is where financial advice can make a real difference. Our research finds that pre-retirees who receive ongoing face-to-face advice are significantly more likely to feel prepared for retirement than those who do not receive advice.”

The research also shows that retirees who receive financial advice are almost four times more likely to have some of their pension invested in assets that can continue to growth their wealth during retirement than those who don’t.4

A huge 61% of advised retirees have a proportion of their pension invested in equities, which provide the scope for further growth, compared to only 16% of those who don’t receive advice.5 The extra funds from returns can help ease the pressure on finances in later life, and provide the reassurance that needs will be met throughout retirement. For more information, contact your Adviser today.

Sources:

1 Office for National Statistics, National Life Tables, 25 September 2018
2,4,5 St. James’s Place and Opinium Research, Intergenerational Wealth and Retirement Planning, November 2019. Opinium Research carried out an online survey of 4,000 UK adults aged 18+ from 18 to 24 April 2019. Results have been weighted to representative criteria.
3 Financial Conduct Authority, ‘Retirement income market data 2018/19’, September 2019

In the Picture

Dr Sarah Ruggins, Investment Analyst at St. James’s Place, reviews the month of November on markets and trade relations and looks ahead to the festive period.

The Last Word

Stop worrying. Nobody gets out of this world alive.

Clive James – the journalist and author died last week at his home in Cambridge.

The information contained is correct as at the date of the article.

AXA is a fund manager for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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