WeeklyWatch – Consumer spending boosts US GDP, despite challenges across Western markets

31^st October 2023

Stock Take

US GDP on the up

24^th October will forever be a significant date in market terms. And while the current market has its struggles, we’ve thankfully come a long way since the stock market crash 94 years ago.

The US economy has actually been performing well this year, defying those lingering macroeconomic and geopolitical challenges. Last week, it was announced that – buoyed by strong consumer spending – the nation’s GDP grew 4.9% during the third quarter. This was the fastest rate since the end of 2021 and a clear improvement on the 2.1% growth recorded in Q2.

This will likely give the Federal Reserve confidence about keeping interest rates higher when they next meet on the topic.

(Un)lucky number 7

It wasn’t good news across the board, however, with indexes continuing to be dictated by the aptly named “S&P7” (Apple Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp., NVIDIA Corp., Amazon.com Inc. and Tesla Inc.).

Despite a surge by Amazon, Alphabet missed analyst expectations, leading to 2.5% and 2.6% drops in the S&P 500 and NASDAQ respectively.

Interesting moves in Europe

The FTSE was also on the slide in the UK, perhaps in a case of foreboding ahead of this week’s Bank of England policy meeting?

Across the Channel, the European Central Bank (ECB) brought an end to 10 consecutive interest rate hikes by leaving the base rate unchanged at 4.5%.

Pressures around surging inflation pressures have abated meaningfully this year, with inflation expected to have slowed last month. With the economy having also weakened, there’s less pressure for the ECB to raise rates further, although ECB President Christine Lagarde has been clear that additional action isn’t out of the question. Despite this, the MSCI Europe ex UK index closed the week 0.8% lower.

Hetal Mehta, Head of Economic Research at St. James’s Place, noted:

“Unlike the last meeting, the ECB kept rates on hold as widely expected. We’ve had a long spate of negative data surprises – including weak business sentiment – and continued progress on inflation. But there is still a while to go before the ECB will be comfortable enough to signal a cut in rates. Unemployment is still low and core inflation tends to move slowly.

“The ECB is most likely done on hiking now, but the bias will be towards a hike for a few more months.”

Government support boosts Chinese equities

While it was hard to pinpoint positive performance in the US or Europe last week, Chinese equities lifted after the government announced further support for the economy. The measures, which included a bump in its fiscal deficit and fresh sovereign debt issuance for disaster relief and construction, were welcome news after recent falls left the CSI 300 Index at its lowest level since 2019.

The Chinese market has been weak this year, with the country’s property market struggling in particular. However, Martin Hennecke, Head of Asia & Middle East Investment Advisory & Comms at St. James’s Place, notes this may prove a long-term opportunity for investors. He says:

“From a China macro perspective, these days, whenever there are announcements of new stimulus measures – and we have been seeing a steady flow of such recently – the public reaction is one of ‘crying wolf’ too many times and its being largely ignored, yet stabilising industrial production and consumer spending may indicate they are starting to work their way through, at last.

“When retail investors exit depressed markets or sectors driven by recency bias, corporate CFOs looking at business value vs price often see and exploit the opportunity, with 2023 corporate stock buybacks in Hong Kong expected to come in four times higher than the prior five-year average being a good example.”

Wealth Check

Financially speaking, it’s been a year to forget for many households, with soaring inflation, rising cost-of-living and choppy markets leaving many of us feeling the squeeze.

And, while many people are prompted to take financial advice for major life events or specific goals like buying a house, getting married, receiving an inheritance or retirement planning, it’s actually during the hard times that the value of advice comes into its own.

Although good advice is important for those key life events, we can help you tackle a whole range of issues relating to financial well-being.

The purpose of financial planning is to help you manage your income and assets in the best way, so you can achieve your dreams. This can include:

Making the most of your money on a day-to-day basis.
Being financially capable of dealing with the unexpected.
Feeling confident, empowered and knowledgeable.
Making smart use of debt, investments, insurance policies, tax reliefs and financial products to help you on your journey.

What’s more, reviewing your strategy as you go along gives you the opportunity to be flexible when things change. The most important thing is having the peace of mind that you’re on the right path.

The current cost-of-living crisis presents a huge threat to many people and their prospects of achieving these aims. Although some are more insulated than others, the impact has become widespread.

We’re here to help you with the most mundane aspects of money management – and the most complex areas, too. If you’re worried about high inflation, energy bills, interest-rate rises or other economic challenges, talking about these issues is the first step to feeling better about it.

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. The value of any tax relief depends on individual circumstances.

In The Picture

Despite its current challenges and valuations well below the global average, ignoring China when looking for investment opportunities may not be in investors’ best interests.

The Last Word

“It is not just about the game. Our country goes through such a lot. We are just grateful that we can be here. I want to tell the people of South Africa ‘thank you so much’.”

– South Africa captain, Siya Kolisi, on winning the Rugby World Cup over the weekend.

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.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP approved 30/10/2023