WeeklyWatch – US markets surged after surprisingly strong jobs data

06 July 2021

Stock Take

Just the job

Better-than-projected employment figures concluded a buoyant week for US markets, which had continued to reach historic highs in readiness for the data.

As Friday opened, figures circulated were anticipated to show that the US had bolstered its economy with 720,000 jobs – representing the sixth consecutive month of growth. However, the actual growth surpassed this number, at 850,000.

Perhaps unsurprisingly, the leisure and hospitality sector witnessed the largest growth, adding 343,000 new jobs in the month. This would indicate a healthy bounce-back following an extended problematic period due to COVID-19.

Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, commented:

“Overall, this report signals incremental progress in the pace of job growth, but there’s no sign yet of a shift back into the labour force. The missing millions are still missing, but it’s too soon to see any impact of the early ending to the $300 per week unemployment benefit uplift in a few states.”

He continued:

“It’s reasonable to expect a modest shift back into the labour force in July and August as more states cut off the benefit, but when the federal money runs out on 6 September, about 70% of unemployed people will still be receiving the uplift.”

US markets, which had been gaining traction over the seven-day period, mainly ended the week in a strong position, following the news. This further gave way to an uplift in European stocks on the Friday; however, this was insufficient to fully redress the slight dips seen over the rest of the week, and the FTSE 100 rounded off the week flat while the STOXX Europe 600 Index finished slightly down.

Diversity is key

The spread of the Delta variant of COVID-19 has resulted in many worries across Europe. The UK has recently experienced a surge in COVID-19 numbers, just as the lifting of the majority of restrictions (due 19 July) is within reach. While these exchanges concluded the week slightly down, the general first half of the year has been strong on either side of the Atlantic. During the first six months of the year, the FTSE 100 rose 8.57%, while the STOXX Europe 600, S&P 500, Nasdaq and Dow Jones have all seen double-digit growth since the beginning of the year.

Darren Johnson, Head of Engagement – Investment Consultancy at St. James’s Place, proposed that markets have reacted to the underlying economic improvement in the first six months of the year, which has become more certain since vaccine rollouts got underway at the end of last year.

“Markets are a leading indicator of where the economy is likely to go. And the economy is likely – we can debate it, but it’s likely – to improve from where it’s been. So, it shouldn’t be a surprise that markets have gone that way.”

He went on to say that many funds that suffered last year have gone on to do relatively well this year:

“The funds that struggled last year are the ones that, ultimately, have done the best this year. And that brings us on to the benefits of diversification: it really does show you how quickly things can change without you noticing.”

Wealth Check

Last week, it transpired that the level of Income Tax paid by the public each year has doubled in the past two decades. According to data from HMRC, the figure in the 1999/2000 tax year was £93 billion, while in the 2018/19 tax year (the last one for which data is available) it was £187 billion.1

This rise is, in part, due to the fact that more people are paying tax: while 27 million people paid Income Tax at the start of the period, almost 32 million people paid at the end.

More specifically, it’s also attributable to the recent freezing of Income Tax thresholds. As wages increase while the levels at which people pay tax stays the same, more people have ended up paying higher rates of tax. In this year’s Budget, Income Tax, Capital Gains Tax and Inheritance Tax thresholds were frozen until 2026, so as to help cover the extra public expenditure brought about by COVID-19.

HMRC also gauges that in this tax year (2021/22), anyone paying the ‘additional rate’ of Income Tax will be in the fastest-growing group. It estimates that there will be 440,000 people in this group at the end of 2021, representing a 10.3% increase over the 2018/19 tax year.1

Such changes underline the importance of the increased need for financial advice. Professional guidance about the latest levels of taxation, and the actions you can implement to maximise the various tax reliefs that relate to your circumstances, mean that you can have peace of mind about your financial well-being in the years to come.

Contact your Wellesley financial adviser to discover more about the steps you can take to get you closer to meeting your financial goals.

Sources:

1 HMRC, Income Tax payers by type, 30 June 2021

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“Hairdressing and personal grooming inflation was strong in particular, at an annual rate of 8%, and saw a 29-year high. Pent-up demand, essential need, or recreating the early 1990s David Beckham look, I leave that to others to judge. Further up the supply chain, food input prices were up, and producer input inflation was around a 10-year high. However, these price rises are certainly not universal, and for balance I should note that we also learned last week that Victoria Beckham is reducing the average selling price of her dresses by almost 40%.”

– Andrew Bailey, Governor of the Bank of England, gives his take on inflation in a speech at Mansion House last week.

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

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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