WeeklyWatch – Global growth and markets flourish

21st May 2024

Stock Take

The seeds of growth starting to take root

Last week saw continuous growth for markets. Inflationary data improved and figures from the US gave investors even more reason to be optimistic.

The Dow Jones US Index exceeded the 40,000 mark for the first time in its history. The NASDAQ and S&P 500 often steal the limelight since they cover the ‘Magnificent Seven’ and have reaped the largest benefits from the ongoing AI boom. Having said this, the Dow has grown by 50% since hitting 30,000 in 2020, doubling since it hit 20,000 in 2017.

The Dow Jones Index has grown in strength as a result of the strong earnings resilience that a large number of US companies have demonstrated in the adversity of a tough global economic climate. As it stands, the US is on track for a ‘goldilocks’ scenario in which inflation comes down without falling into recession. With the presidential election happening later this year, the US government will likely be incentivised to continue this good run.

Technology-associated stocks have been the driving force of economic forecasts for approximately the last 18 months. There is reason to be encouraged, as returns have broadened out with areas such as utilities and financials all gaining positive momentum over this last month.

US inflation encourages markets

Improving CPI inflation data in the US from last week was also a big encouragement for markets. The figures revealed that inflation slowed to 3.4% in April, which broke a run of three consecutive months that were above forecast releases. However, even though the lower numbers are positive, it’s unlikely that the Federal Reserve will be convinced that this is the time to lower interest rates.

The Co-Head of Sustainable Multi Asset Solutions at Robeco, Colin Graham, stated:

“So far, US consumers have actually managed to take most of the economic pressures in their stride. A big part of this is that the US is predominantly a fixed mortgage rate market for households. This has so far allowed consumers to ‘term out’ their debt, locking in 3% rates for 30 years as recently as 3 years ago. On top of this, the median US consumer is still experiencing real wage growth, even in the face of rising prices.”

“It would be remiss not to mention where the US consumer could be derailed. First, government spending could fall, although that is unlikely as Biden tries to sweeten the voters to back him in the November presidential election. Second, the long and variable lags of monetary policies start to bite and increase the debt servicing burden of more consumers, draining disposable income.”

UK wage growth picks up the pace

The UK’s wage growth is finally outpacing inflation! The Office for National Statistics reported last week that annual growth in average weekly wages, which includes bonuses, remained at 5.7% in the three months to March. Economic forecasters had predicted that it would fall slightly, but its growth prevailed even though the overall job market slowed down and the number of vacancies fell slightly too.

The higher salaries will likely cross over into higher inflationary pressures and could be difficult for the Bank of England to tackle, impacting their decision on cutting interest rates.

Portfolio Manager at TwentyFour Asset Management George Curtis said:

“The European Central Bank (ECB) will almost certainly start their rate cutting cycle next month. Supportive inflation data and clear guidance from the governing council has driven market implied probabilities of a June cut to almost 100%, with little in the way to derail that.”

As central banks start their process of cutting interest rates, discussions are likely to shift and focus on how synchronised these cuts will need to be. Members of the ECB are likely to be reluctant to move too far ahead of the US, which could prove limiting.

The timing and manner of central banks cutting interest rates over the next few months are likely to significantly impact market performance in the second half of the year.

Robeco and TwentyFour are fund managers for St. James’s Place.

Wealth Check

Keeping it in the family

As the saying goes, you can’t take your money with you when you go. However, Inheritance Tax (IHT) is a difficult financial obstacle to overcome when passing it on, leading to the question: what’s the best way to bequeath money and assets to your loved ones and pay the least amount of inheritance tax?

Power in planning ahead

Inheritance Tax is the tax paid on your estate when you pass away. Money, investments, property and valuable possessions are all included in an estate. IHT is charged at up to 40%, making it essential to make plans to avoid having a large chunk of your money taken away that could otherwise be passed on.

Your estate needs to be worth more than £325,000 to make a beneficiary liable for paying IHT – this tax-free threshold is known as the nil-rate band (NRB). In addition to this, there’s a main residence nil-rate band of £175,000 (RNRB) if your home is passed on to a direct descendant.

How to pass on your pension, tax-free

When people start legacy planning, a large number consider putting their assets into trusts or passing on their property. However, pensions can have a much bigger part to play when it comes to IHT, as they generally sit separate from your estate.

Optimise your ISAs

You can draw on any tax-efficient ISA that you have. But bear in mind, that while ISAs can shield you from paying Income Tax and Capital Gains Tax (CGT), any money that remains in your ISAs gets counted as part of your estate when you pass away, so they pose a risk of pushing you over the nil-rate bands and liable to paying more IHT.

Gifting is a good habit

Each tax year, you’re allowed to gift a total of £3,000 and it won’t be added to the value of your estate. If you haven’t done so already, you can use your previous year’s allowance, provided that you use that first.

Small gifts of up to £250 can be made free of IHT during a tax year to anybody who hasn’t received a benefit included in the £3,000 annual allowance.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

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

Trusts are not regulated by the Financial Conduct Authority.

In The Picture

In the UK, around one million families could have multiple generations taking retirement at the same time in the next ten years. Because of this, retirement income has to go further, meaning that smart financial planning is imperative.

Source: Research conducted for St. James’s Place by Opinium, among 4,000 UK adults between 27th February and 8th March 2024. All results are weighted to nationally representative criteria.

The Last Word

“Thank you so much to my team. It’s a big opportunity for my family, for me for my country. It’s a great time… I am ready for a rematch.”

Oleksandr Usyk, the Ukrainian boxer, celebrates becoming the undisputed heavyweight champion.

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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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: 20/05/2024