WeeklyWatch – S&P 500 breaks 5,000 for first time
13th February 2024
Stock Take
Magnificent Seven tech stocks continue to grow
On Thursday last week, the US stock index S&P 500 broke the 5,000 mark for the first time.
The gain was driven by US technology stocks, as most have been for some time. Meta, the owner of Facebook, and chipmaker NVIDIA have made significant contributions this year; in 2024, the values of both companies have climbed by over 30%.
For a large portion of the past year, the shares of the so-called ‘Magnificent Seven’ – Microsoft, Apple, Alphabet, Tesla, Amazon, NVIDIA and Meta – have performed best.
The Head of Strategic Research at Schroders, Duncan Lamont, highlights:
“The Magnificent Seven are up 89% since the start of 2023, the rest of the world 17%. They make up more of the MSCI All Country World Index than Japan, UK, China, France, and now Canada too, combined.”
He adds, however:
“This masks cracks among the seven. They are not a homogenous group in terms of their businesses or share price performance. Three of the seven have underperformed the rest of the market since September.”
It’s worth noting that, over this same period, Tesla’s value has fallen.
US interest rate cuts aren’t happening just yet
The S&P 500 did not change all that much outside of the technology sector. Due to global market reactions to an interview in which US Federal Reserve Chair Jerome Powell minimised the likelihood of a March interest rate drop, many US companies had a difficult week. He also restated expectations that the Fed will make three cuts this year throughout the interview.
As a result, the market has reduced its expectations for rate cuts, although there are still about five 0.25% cuts priced by year’s end, compared to nearly seven just a month ago.
UK inflation expected to rise, US expected to drop
US inflation data is scheduled to come out today. Headline Consumer Price Index (CPI) inflation is predicted by Bloomberg consensus to reduce significantly from 3.4% to 2.9%, while core inflation (which excludes fuel and food) is predicted to drop from 3.9% to 3.7%.
A day later, the UK’s inflation data is expected, and markets are mostly expecting a very slight uptick in line with forecasts from the Bank of England.
Partner in the Portfolio Management team at TwentyFour Asset Management, Felipe Villarroel, commented:
“It’s important to keep in mind that both countries showed December CPI prints that were above market expectations, which highlights that the road towards target is unlikely to be a straight line. Markets, and certainly the Fed and the Bank of England, don’t need another surprise next week.”
Villarroel suggests what to look for in the statistics:
“We need to see services inflation continuing its downward trend as goods disinflation might be running out of steam. In fact, in the US, it already looks like we have reached the lows on this front.”
Despite improved data in the UK labour market and more activity in the services sector, the FTSE 100 dropped by 0.52% last week. But elsewhere, the news was better.
Huge peaks in Chinese and German stocks
The Nikkei 225 index in Japan increased 2.04% as a result of the weakening yen and more rumours that the Bank of Japan may be abandoning its yield curve control policy.
At the same time, the Shanghai Composite Index increased by 4.97% before the Lunar New Year holiday. China’s stocks increased as the government’s most recent round of stimulus measures soothed worries about the country’s deflation getting worse. Due to concerns over the Chinese property industry, Chinese shares have struggled recently, which has negatively impacted the whole Emerging Markets sector.
Last week, the German DAX Index achieved all-time highs in Europe, in spite of ongoing difficulties with domestic growth. Due to their extensive trading with China, luxury German firms are anticipated to gain from the earlier mentioned Chinese boost.
Wealth Check
Everyone wants to act morally towards their family. According to recent St. James’s Place research, over two-thirds (69%) of SJP clients anticipate supporting their families financially at some time in the future.1 And over one-third of those people expected to offer that help in the form of an inheritance.
Many of us have been able to fulfil some of our long-term life goals thanks to a lump sum inheritance. It could turn around a family’s financial situation, help you pay off your mortgage or fund the future education of your children or grandchildren.
But when it comes to leaving your own money to your children and grandchildren, it can be hard to accept that a large portion of your wealth may not transfer to the people you care about due to the amount of Inheritance Tax (IHT) that must be paid on your assets.
It’s important to know when to start planning, and ‘the sooner the better’ isn’t always necessarily true. Planning should generally begin as soon as your assets and savings start to add up. This is often the time when your regular costs decrease, for example when your children move out or when your mortgage is almost paid off.
It’s simple: Keep calm, carry on, start the conversation.
It’s essential to start communicating with your family and making clear what you want, too. Yes, sometimes these conversations can become emotionally charged as you discuss gifts and inheritances, but they’re conversations that need to happen for the benefit of everyone.
Giving gifts can be quite an emotional decision. Parents can be reluctant to appear to be choosing one child over another, particularly if the children are in different phases of life.
Naturally, the complexity of financial planning and decision-making increases with the size of the family. A financial adviser can help to facilitate family discussions about finances.
Having the conversation can often make sorting out your estate a little bit simpler after you’ve passed away.
If you’d like a financial adviser by your side to help start those conversations, do get in touch.
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.
Source
1Intergenerational Wealth Transfer Survey, SJP and The Wisdom Council, 2023, survey size 887.
The Last Word
“We’ve been fighting for this all year. The goal has always been to get three [in a row] but you can’t do it without getting two and we’ve had a target on our back all year.”
– Travis Kelce, Kansas City Chiefs player, celebrates winning back-to-back Super Bowls.
Schroders and TwentyFour are fund managers 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: 12/02/2024