WeeklyWatch – Red means go for UK politics

9th July 2024

Stock Take

A new political age for the UK

The Labour Party secured a landslide election victory in the UK general election, and the nation has welcomed its new Prime Minister, Sir Keir Starmer. But, despite this seismic political shift, the initial reaction from markets was muted.

This may be due to the high levels of polling as the UK geared up for the election, which gave investors a chance to anticipate and ‘price in’ the election results.

Starmer’s huge victory saw the Labour Party win 411 seats out of 650. The party’s large majority should, in theory, allow them to execute their manifesto pledges. After five leader changes since 2016, a period of political stability will be warmly welcomed.

However, that’s not to say this new government isn’t likely to face some economic challenges. While the economy may no longer be in recession and inflation is back at its 2% target, the new government has taken on an economy that isn’t growing much; there’s also a high amount of public debt and inflationary challenges are still lingering.

We’ll most likely have a clearer idea of what the new government’s plans are as the next few weeks and months unfold. The Autumn Budget will be one of the first opportunities to see how the equity markets measure up against Labour’s fiscal plans.

As it stands, the business community appears relaxed about the new government, as the Head of Equities at Schroders, Sue Noffke, comments:

“The mini-Budget blowout in 2022 showed how poor economic management can negatively impact investor confidence and UK assets. It seems bizarre to say this, but it’s probably helpful that we had that blowout, and I think the market knows this too. It has shown everyone what’s not possible and the chancellor-in-waiting, Rachel Reeves, seems to have really taken the lessons on board.”

Which UK markets are looking to benefit under Labour’s initiatives?

Certain UK market sectors are looking likely to benefit from the new government, including infrastructure and defence industries, due to Labour’s pledges for these areas. On Friday, the shares of several UK house builders jumped, thanks to Labour’s pledge to construct 1.5 million new homes over the next five years. This challenging target will require planning regulation modifications, which could take some time to be put into place.

Head of Investment Specialists at St. James’s Place, Sarah Ruggins, noted:

“Overall, it’s important that – despite their increased confidence – investors do not get ahead of themselves by making any rash, short-term portfolio decisions in response to today’s news. Not only are specific policies still somewhat unclear, but our recent analyses of UK market performance data spanning the past 10 UK elections, from 1987, found no clear trend between election outcome and market performance. Investors should take this on board and adopt a long-term approach to investing, which refrains from trying to time the market and instead focuses on building a diversified portfolio across asset classes and geographies, tailoring this to meet specific return and risk objectives.”

Never forget the French

Election shockwaves aren’t just being felt in the UK, our cousins across the Channel are also seeing quite the political shake-up. The French parliamentary election has been far more unpredictable than the UK’s. Potential success for the far-right National Rally party rocked European equities after it looked like they would emerge as the largest party. But as the week went on, the centre and left parties agreed to work together to avoid a split in the votes.

As a result, it was confirmed at the weekend that they had succeeded in their aims. A higher-than-expected voter turnout aided the left-wing New Popular Front to secure the most seats in the second round of voting, who were followed by Macron’s centrist Ensemble party and Le Pen’s National Rally finishing in third.

This result will mean that parliament will be hung, but markets have had a positive reaction to the turnaround. The French CAC recouped the previous week’s losses by recovering 2.62% in local currency.

US markets durability as election builds up

As the US awaits its long-anticipated election later this year, the S&P 500 continues to make good progress, up at 1.95%. What’s more, the NASDAQ Composite was up 3.5% last week – and all despite a shorter week because of the 4th July holidays. The market growth was aided by high performance in a few large companies like Tesla, Apple and Meta. In the meantime, weaker economic data was revealed and increased the probability that an interest rate cut will happen sooner rather than later.

Schroders is a fund manager for St. James’s Place.

Wealth Check

How do I find time to incorporate financial planning into my busy lifestyle?

Having a demanding job makes it difficult to balance life at home as well as work. So keeping on top of your finances and checking to make sure that your money is working as hard as possible is even tougher when there are many other things in life to juggle.

Lawyers and accountants are often very stretched for time, meaning their personal life admin and putting together an effective financial strategy often falls lower down the list of priorities. For business owners, they often have little distinction between personal and business planning.

However, there’s good news! You can hand over the extra load by delegating it to a specialist.

The bigger picture

A person in their mid-40s may have large demands on their time and income, whether they’re focused on work, family or maybe ageing parents, all of which take out a large amount of time for personal planning.

All these short-term challenges make it difficult to step back, look at the wider perspective and plan ahead. Financial advisers can help you understand what’s important to you, what that might look like and when you can slow it down further down the line.

The aim is to help people visualise a way through and present them with options.

When you’ve worked with an adviser to craft a vision of what you have and where you’re wanting to go, they’re able to independently go and get on with the vast majority of the job on your behalf.

The true value of advice

Financial advice can add particular value for high earners when it centres around pensions – a complicated area where rules seem to change regularly. Long-term financial plans are usually built on the foundation of tax wrappers, including pensions and ISAs, so it’s easy to miss out on tax reliefs and allowances that can make a significant difference in the long run.

But financial advice and planning doesn’t just involve money. It extends to hopes, fears, lifestyle, ambitions, security and peace of mind. Financial advice serves more as a roadmap rather than a vehicle in how it helps people get to their life destination.

Investing time and money into effective financial advice can maintain good financial well-being, just as exercising and a balanced diet are good for your physical health.

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.

The Last Word

“It feels good, I have to be honest. Four and a half years of work changing the party, this is what it is for – a changed Labour Party ready to serve our country, ready to restore Britain to the service of working people.”

Sir Keir Starmer, the new UK Prime Minister, celebrates his electoral victory.

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 2024. 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.

© S&P Dow Jones LLC 2024; all rights reserved.

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: 08/07/2024