Wellesley WeeklyWatch – April’s earnings results sail forth

05 May 2021

Stock Take

Soaring stocks

As April drew to a close, US stocks performed well again overall last week, despite Friday’s slump. This rounded off a notably robust month, given that the S&P 500 Index of large US companies had its biggest one-month increase since November 2020, when successful vaccine development subsequently boosted the share prices of many companies.

The election of President Biden had led some market commentators to anticipate a negative impact on US stocks – especially in light of his electoral promises regarding taxes and wealth distribution. Yet the recent buoyant performance in the US market indicates that such concerns are misplaced, at least for now, suggests Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund:

“US equities continue to record new highs in the wake of stable conditions and upbeat corporate earnings. Notwithstanding President Biden outlining progressive-leaning plans for bigger government, higher taxes and greater income redistribution, it seems that stocks have been largely unperturbed.”

He added:

“In the period prior to the US elections, there had been a fear that a policy shift in such a liberal direction would be badly received in financial markets, but it seems as if markets are now happy to take this in their stride.”

Recovery in sight

In the meantime, the results of April’s earnings season have given encouraging signs about the likely recovery of many companies. Together with promising data about economic revival across the globe, the news would have appeared to have boosted investor confidence that economic recovery is in motion.

Indeed, companies in Europe have surpassed analysts’ expectations over the past month – for instance, Goldman Sachs gauged last week that businesses in the STOXX Europe 600 Index have beaten earnings estimates by approximately 15%, and it was a similar scenario for the largest companies in the US.

Such earnings results have delivered a sense of optimism for the future, while also giving an insight into what corporate leaders are thinking. According to analysis by Bloomberg, the word ‘inflation’ came up in last month’s conference calls with top executives twice as often as in the previous quarter’s calls.

Inflation consideration

Ever since the start of the vaccine programme rollout at the end of last year, investors have been attempting to calculate whether the economic bounce-back will mean increased inflation on a worldwide scale. Low levels of inflation are normal; however, there are worries that, if it grows too high, it could cause governments and central banks to modify their policies.

Asset prices have been supported by policies, such as maintaining low interest rates, since the pandemic reared its head last year, and such policies have been markedly positive for fast-growing technology companies. The first quarter of 2021 has seen investors pivot from these sorts of companies to the ones that they anticipate will benefit from an expansive economic recovery and a new investing environment.

Fund managers are including the prospect of higher inflation in their calculations. It’s just one of the many factors they take into consideration when investing your funds, to ensure that they are well positioned for the future.

“Inflation is not something we are too concerned about,” shared Clyde Rossouw from Ninety One, Manager of the St. James’s Place Worldwide Income fund and Continental European funds. He added:

“The companies into which we are interested in investing tend to have pricing power, which means they can raise prices in response to inflation. The more advantaged a business is in terms of its business model, the more it can be effective in its ability to raise prices across the board, and therefore, still price its products or services ahead of whatever the broader inflationary forces are.”

Naturally, the best way for investors to tackle a lack of assurance is, as always, to invest for the long-term with a well-diversified portfolio. When funds are invested in a broad range of assets, their performance doesn’t overly depend on any one outcome.

Wealth Check

According to a recent survey by Freetrade, a notable proportion of investors aren’t confident about managing their retirement savings.

Where does this lack of confidence stem from? In part, from a lack of understanding – 80% of people were unable to answer questions linked to annuities, annual allowance, or pension drawdown. Respondents aged 55 or above displayed no greater confidence or understanding when it came to their retirement savings, which is somewhat concerning.

Thinking about retirement in terms of technical concepts, such as ‘drawdown’ or ‘income’, for example, can needlessly feel overwhelming.

Imagine the lifestyle you hope to have once you’re retired, along with your goals for this important stage of your life. Discussing your ideas and objectives with a professional adviser can be a huge help in developing a strategy that works for your circumstances, and therefore meets your needs.

“If you work backwards from retirement, that helps with working out what you need to do,” suggests Tony Clark, Senior Propositions Manager at St. James’s Place.

There’s no need to feel alone with such a crucial decision – talking it through with an expert can help you feel more confident and assured about your financial future. Plus you’ll not only feel more secure about your long-term retirement savings, but you’re likely to notice a shift in your current well-being, too.

Sources:

Freetrade, April 2021; total question respondents 2,000

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

In the Picture

This week, the UK government is expected to announce its so-called ‘green list’ of countries that are deemed safe to travel to for holidays, this summer and beyond. Abrie Pretorius, a fund manager for Ninety One, shares his thoughts with us about the reopening of economies and the road to recovery around the world.

The Last Word

“I am feeling fairly optimistic that we will be not completely back to normal, but something which feels a lot more normal by the summer.”

Leading epidemiologist Professor Neil Ferguson says that the latest COVID-19 case numbers in the UK are encouraging.

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

BlueBay and Ninety One are fund managers 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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