WeeklyWatch – Jackson Hole speech leaves markets on a high

1st September 2021

Stock Take

The only way is up?

Federal Reserve Chairman Jerome Powell buoyed markets on Friday, as he expressed a future shift in US economic policy during his speech at the Jackson Hole Economic Symposium.

At one time, Powell had declared that the US would continue its asset-purchase programme until it believed employment and price stability goals had been reached. On Friday, he commented: “My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment.”

While recognising that challenges are at large – including the continuing spread of the COVID-19 Delta variant in many US states – Powell said the Fed may start to gradually dial down the pace of asset purchases this year.

David Page, Head of Macro Research at AXA Investment Managers, remarked:

“We argue that a key shift in language between the minutes of July’s FOMC meeting and today’s speech suggests that the Fed is poised between announcing a tapering of its assets in December (our outlook to date) and a little earlier in November. We consider data releases over the coming months as critical in that determination, but for now continue to suggest that an announcement in December is most likely.”

On the other hand, tapering asset purchases won’t automatically signal a change to interest rates, as the Federal Reserve has stated that a “different and substantially more stringent test” must be passed ahead of any increase in that regard, Powell said.

US market strides…

Powell’s words had a marked and instant effect on markets, with both the Nasdaq and S&P 500 subsequently forging further into record territory.

This rounded off a positive week for US equities, which had been rising during the course of the week. The S&P 500 had dropped the previous week, but atoned for these losses early in the week to conclude the week at a new record high.

…and trepidation elsewhere

Given that the US economy has so much global clout, it’s possibly not too much of a shock that Powell’s speech likewise impacted non-US markets. The FTSE 100 closed the week up slightly – in part down to a boost in values on Friday afternoon.

The STOXX Europe 600 ended the week flat. In spite of the fact it closed just an hour after the scheduled start time of Powell’s speech, it nevertheless finished the week with growth on Friday, yet this wasn’t sufficient to balance out the falls experienced earlier in the week. Market research company GfK reported on Thursday that European shares were also affected by waning German consumer confidence. The survey of around 2,000 Germans discovered that the public had become increasingly anxious due to rising prices and increasing COVID-19 cases.

The crackdown continues

Numerous Asian markets continued to be taken aback by China’s regulatory crackdown. Alongside its pressure on tech companies and monopolistic behaviours, Chinese President Xi Jinping has drafted out measures targeting income regulation and wealth redistribution – possibly thwarting prospects for luxury brands with strong sales in China.

While this might have disturbed markets for the short term, Martin Hennecke, Asia Investment Director at St. James’s Place, reflected on the recent listing of China Telecom – the biggest flotation in the A-share market in a decade – and the robust market for initial public offerings (IPOs) in Hong Kong, to propose that it’s doubtful that the significance of China’s private sector is going to vanish any day soon.

He added:

“In fact, it currently contributes approximately 60% of China’s GDP, is responsible for 70% of innovation, 80% of urban employment and provides 90% of new jobs.”

He went on to say that, while it’s understandable that the surge of recent regulatory interventions might lead to investors posing questions and having concerns, this should nevertheless be a timely reminder of how crucial it is to diversify across both sectors and global markets.

Wealth Check

Golf has experienced an undeniable upswing in the popularity stakes, despite – or maybe because of – the imposed coronavirus restrictions. In May, governing body R&A announced that there was a staggering 2.3 million extra golfers in 2020.1

In June, St. James’s Place Wealth Management joined the partnership programme of The Professional Golfers’ Association. The four-year deal means that PGA members can access financial advice – be it simple protection or mortgage help to more complex Inheritance Tax or pension planning – through Wellesley Wealth Advisory.

Indeed, there are plenty of similarities between ‘acing’ it on the golf course and being tax-savvy. Both involve goal-setting and planning for the long term – more often than not with the guidance of an expert – to reap big rewards.

According to Tony Clark, Senior Propositions Manager at St. James’s Place:

“Tax is core to most people’s financial planning; so if you are trying to manage it on your own, there is a good chance you’ll miss something – perhaps concerning tax allowances and reliefs – and hit the equivalent of a bunker. But a trusted adviser, like a good caddie, knows where the obstacles are, can help you cut through and show you what is essential, so you make expert decisions.”

Would you like some help identifying simple but effective tax-saving opportunities? Get in touch with the Wellesley team about completing a Tax Health Check, and we’ll be only too happy to assist.

Sources:

1,2 R&A, 2020 GB&I Golf Participation Report, 25 May 2021

Your home may be repossessed if you do not keep up repayments on your mortgage.

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

” These are challenging times for the public we serve, as the pandemic and its unprecedented toll on health and economic activity linger. But I will end on a positive note. Before the pandemic, we all saw the extraordinary benefits that a strong labour market can deliver to our society. Despite today’s challenges, the economy is on a path to just such a labour market, with high levels of employment and participation, broadly shared wage gains, and inflation running close to our price stability goal.”

– Federal Reserve Chairman Jerome Powell on the health of the US economy.

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

AXA Investment Managers 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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