WeeklyWatch – Focus is on the Fed following Jackson Hole Symposium

30th August 2023

Stock Take

The annual Jackson Hole Economic Symposium

US equities benefited from some positive company results before all eyes turned to Jackson Hole, Wyoming, last week.

Jackson Hole is becoming renowned for its economic symposium – as well as for being a famous skiing destination. Leading central bank representatives and decision-makers from across the world attend this annual conference to debate problems related to a theme of the year, this year being ‘Structural Shifts in the Global Economy’.

What does the Fed’s short-term future look like?

The speech by Federal Reserve Chairman Jerome Powell has historically received the greatest attention. His speech is often seen as a reliable reflection of the Fed’s thinking and provides insight into the route the central bank is likely to follow in the upcoming months.

Of course, while bankers tried to control inflation, the past year has been dominated by interest rate increases in the western world. The US Federal Reserve have stopped raising interest rates as recent figures show that US inflation has been decreasing towards its 2% objective. Despite this, inflation is still high.

Powell’s speech on Friday drew considerably more attention than normal since there is so much ambiguity over how high interest rates will ultimately proceed.

In contrast to last year, when he made it clear that rates will rise (which is exactly what happened), this year’s speech was a bit more subtle. Powell said that the Fed was ‘navigating by the stars under hazy skies’. Overall, a significant takeaway was that the Fed is still ready to raise interest rates or maintain them at high levels, depending on what the economy demands. He noted:

“At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

Given that this speech was delivered on Friday, it’s likely that any market responses will come this week.

High stock prices and low PMIs for the US

Last week, outside of the symposium, we received a mixed message regarding the state of the US economy. Technology stock prices enjoyed a strong week thanks to numerous strong earnings results. This includes major chip manufacturer NVIDIA, whose shares have soared this year as a result of advancements fuelled by artificial intelligence.

The US technology sector’s benchmark, the Nasdaq Stock Market, increased by 2.3%, while the S&P 500 gained a modest 0.8%.

On the other hand, the preliminary August Purchasing Managers’ Index (PMI) unfortunately showed that the overall economy still faces difficulties. Economists frequently use PMIs to assess the state of an economy by using surveys from businesses to produce reports.

Both the US and UK manufacturing PMIs for August were below average. Felipe Villarroel, Partner at TwentyFour Asset Management, noted:

“The PMI data is a reminder that the hiking cycle only started 18 months ago and there are lags that are yet to be felt in the real economy.”

Stocks and summits outside of the US

In the eurozone, the MSCI Europe ex UK Index ended the week 0.8% higher as equities on the continent benefited from a drop in natural gas prices. Also rising 1.1%, the FTSE 100 saw its first weekly gain in four weeks.

Outside the Western world, the 15th BRICS (Brazil, Russia, India, China and South Africa) Summit was held in Johannesburg, South Africa, last week, and the meeting wasn’t without its controversies. Due to an arrest warrant issued by the International Criminal Court for war crimes, Russian President Vladimir Putin was unable to attend.

Nevertheless, the gathering served as a means of attempting to establish a counterweight to the existing US hegemony. Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates were among the six new nations the bloc asked to join as part of this mission in January.

Wealth Check

Knowing which expenses are tax-deductible as a start-up will considerably improve your cash flow. Plus, many business owners will be seeking legal ways to lower their taxable income as a result of the UK corporation tax rate increasing for some companies to as high as 25%.

However, there are also many common misconceptions about how tax reliefs work. Calculating how much to claim might be challenging, because the guidelines tend to be complicated.

For instance, several small- and medium-sized business (SME) owners are unaware that tax deductions only apply to a limited number of business expenses, with many that are not eligible for tax relief, like client entertainment. Due to this lack of awareness, business owners may also pass up the opportunity to save thousands on other reliefs.

Andy Gibbs, Head of Group Technical at TaxAssist Accountants, says:

“Some tax-deductible expenses are all too easy to overlook. Entrepreneurs often forget to claim all they’re entitled to when the expense doesn’t jump out at them from a bank statement. But finances can often be tight in the early years of a business, so advice and planning can help you save.”

Your business can deduct the cost of your pension payments as well as those of your employees. And you can save more money for the future in a tax-efficient manner because the annual tax-free allowance on pension contributions increased to £60,000 (or 100% of earnings if less than this) as a result of the Spring Budget.

Many business owners work from their homes, especially in the early days. So many people ponder the question: “Can I claim tax relief if I work from home?”

The answer is that if you don’t have another office, you can deduct some of your home’s running costs from your income, which will save you tax. If you continue to conduct portions of your business from home even after moving to a commercial location, you may be eligible for some relief.

Tax credits for research and development (R&D) are another example. These are a plentiful but incredibly underutilised source of government support. This is mostly caused by limited knowledge and uncertainty about eligibility. SME owners who are unsure of their eligibility for R&D tax credits sometimes believe that the credits exclusively apply to high-tech companies, but claims are common across a variety of company sectors, from agriculture to construction. The main requirement is that the R&D project must aim to enhance science or technology.

Speaking to a financial adviser is a good idea if you need help with your tax-deductible expenses. Contact Wellesley today for practical information and advice to make sure you’re making the most of the reliefs available.

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.

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

In The Picture

Over time, inflation means that even everyday items will become noticeably more expensive. This means it’s important you take care to grow your wealth, with an eye on the long term.

The Last Word

“This success belongs to all of humanity, and it will help moon missions by other countries in the future.”

– Indian Prime Minister Narendra Modi celebrates his country’s successful space mission, landing a rover on the south side of the moon.

TwentyFour Asset Management is a fund manager for St. James’s Place.

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.

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SJP approved 29/08/2023