Wellesley WeeklyWatch – A rosy outlook for US stocks following May’s payroll release

08 June 2021

Stock Take

Easy does it

US and European stocks continued to rise last week, following a positive response from Wall Street to a US jobs report. The world’s largest economy added 560,000 jobs in May, which led to the Nasdaq Composite, a technology-heavy index of US companies, subsequently climbing 1.5% on Friday.

The jobs rise was higher than April’s figures, but lower than the consensus estimate – helping to quell fears that the economy is expanding too rapidly. While it might appear contradictory that markets reacted well to reports that the growth of employment is slower than anticipated, it’s likely to inform how policymakers will behave over the months ahead.

Central banks across the globe have provided low interest rates and other forms of help during the coronavirus crisis to support asset prices. However, many are now in the position where they are poised to tighten up their policies if they see a prolonged period of high inflation. If the statistics indicate that economies are starting to overheat as restrictions are lifted, central bankers will have no option but to do a U-turn on their policies. This will help deal with rising inflation, but will probably have a negative effect on asset prices.

Mark Dowding of BlueBay Asset Management, Co-manager of the St. James’s Place Strategic Income fund, wrote:

“Looking forward, debate among policymakers is slowly shifting towards how fast stimulus measures can be withdrawn as economies reopen and then to how different the post-Covid economy will be. Everyone, including central bankers, is watching the data for direction.”

Fund managers are intently assessing the data for tip-offs about the future, scrutinising reports such as May’s US payroll release, plus comments from central bank officials, to forecast the circumstances.

There are already a lot of data points signalling that inflation has taken an upturn over recent months, with commodity prices growing as the world economy recovers. Inflation is just one factor that fund managers take into consideration when investing your funds, to ensure that they keep meeting their goals in the future. They continually appraise the health of the companies they invest in, their growth prospects, plus business and political trends, together with the economic backdrop,.

The best way for investors to tackle uncertainty is by investing for the long term, with a well-balanced range of investments. The performance of funds invested in a wide range of assets is not reliant on one sole outcome.

Dowding added:

“We take the view that growth and employment data in the US will remain solid and inflation will continue to surprise to the upside. We believe US rates will move higher in response, with a high probability that this will be disruptive to fixed income in general – and probably also to wider risk assets.”

Beware of the burn

European stocks also climbed last week, with the STOXX Europe 600 Index reaching a new high. UK stocks closed the week on a somewhat flat note; however, airline stocks were badly affected after the government’s sudden announcement that holidaymakers could no longer travel to Portugal without isolating on their return.

Richard Colwell of Columbia Threadneedle, Manager of the St. James’s Place Strategic Managed fund, added:

“The UK remains a rich hunting ground. It has rallied a long way in some areas, but we feel there is much further to go – not just because ‘value’ stocks have perked up or inflation might occur.”

Investors need to remain vigilant in light of the uncertainty, observes Mark Dowding. Despite the fact that vaccine rollout programmes mean that the pandemic has now been outmanoeuvred, investors cannot afford to rest on their laurels.

“With summer having arrived and markets in a sleepy holding mode for now, there’s a warning for anyone falling asleep in the sun: when things hot up, it’s easy to get burnt.”

Wealth Check

Death can be a delicate topic for discussion. While we may have become somewhat desensitised to it over the last 18 months, it doesn’t make it any easier to broach the subject. Royal London suggested recently that our aversion to thinking about mortality is completely understandable:

“This is also behaviour akin to that popular myth of ostriches sticking their heads in the sand, since every single one of us, whoever we are, whatever our story, will die and be touched by death at some point.”1

Adopting an attitude of acceptance around death – focusing on the areas that we can plan and prepare for – can benefit ourselves and our loved ones too. Royal London suggests starting with a simple checklist: begin by reflecting on what death means to you, and the legacy that you wish to leave behind.

Then move on to the detail, such as preparing for death, roughing out a framework about funeral arrangements, and getting your estate in order. The act of drawing up a Will is often our first touchpoint with death – and yet more than half of UK adults are yet to action this.2

“It’s fairly simple,” said Royal London. “If you own anything of value – whether that’s savings or a property – and you want to decide who inherits what you own, then you’ll want to make a Will.”

To get some initial discussions underway, reach out to your Wellesley financial adviser. Meeting such a difficult topic head-on could be the most empowering action you take for you and your loved ones this year.

Sources:

1,2 Royal London, May 2021

Advice relating to writing a Will involves referral to services that are separate and distinct to those offered by St. James’s Place and which are not regulated by the Financial Conduct Authority.

In The Picture

UK house prices have continued to rise during the pandemic, reaching record highs, despite the impact of COVID-19 on the wider economy.

Nationwide reported last week that many people have gone on to buy homes with more outdoor space as a result of the pandemic. Furthermore, the building society believes that the trend will continue over the next six months, although the longer-term outlook is less certain.

The Last Word

“This is a starting point, and in the coming months we will fight to ensure that this minimum corporate tax rate is as high as possible.”

– French finance minister Bruno Le Maire on the global minimum corporate tax rate of 15% agreed by the G7 over the weekend.

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

BlueBay and Columbia Threadneedle 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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