WeeklyWatch – Autumn chill hits tech sector

10^th September 2024

Stock Take

The tech slide continues

Through much of the post-pandemic era, equity markets have been largely driven by strong returns from a group of tech giants dubbed ‘The Magnificent Seven’ due to their dominance.

However, since one of this exclusive group, Nvidia, posted annual results that came in below some market expectations, the sector has struggled. Given the company’s size and influence on the US market, this has weighed down broader indices, including the S&P 500 and NASDAQ.

So, have the Seven lost their shine? Peter McLoughlin, Head of Research at Rowan Dartington, points out that September has traditionally been a challenging month for the tech sector. He also notes that beneath the main Index figures, we’re seeing a gradual change in market leadership, with financial, industrial and real estate investment trusts (REITs) showing stronger performance.

He observes:

“The outperformance of equal-weighted indices compared to their market cap-weighted counterparts is a trend gaining momentum and deserves close attention. Simultaneously, the Russell 2000 is posting robust advances. These undercurrents suggest tectonic shifts in market leadership are underway, a development that aligns with the concerns about market concentration effects.”

Election, interest rates and uncertainty in the US

The US faces several uncertainties as the year draws to a close. Among the key factors driving market jitters is the presidential election, which is just two months away, with neither party emerging as a clear frontrunner. This week will see the first debate between candidates Kamala Harris and Donald Trump, which both political analysts and economists will be watching closely for clues about what’s to come.

Later this month, the Federal Reserve is expected to cut interest rates by 0.25% to 0.50%, marking the first reduction since the pandemic ended. While a rate cut seems likely, questions remain over the speed of the decrease and where rates might eventually settle.

One key factor in this discussion is the US job market. A weak July jobs report contributed to a brief market dip in early August. However, last week’s data, which showed a slight drop in unemployment and a rise in average earnings but weaker-than-expected payroll numbers, failed to provoke the same reaction.

The UK braces for the Budget

UK investors also have important developments to look out for. The Bank of England’s (BoE) Monetary Policy Committee meets next week to discuss interest rates. Though the BoE has already lowered rates once, the focus now is on how fast and how much further they might drop in the future.

Following that, Labour’s first Budget under Keir Starmer’s government is due in October. The government has been laying the political groundwork for some tough decisions, with a mix of tax increases or spending cuts anticipated.

High energy costs short-circuit manufacturing in Germany

In Europe, Germany was shaken by reports that Volkswagen may close some factories as part of cost-saving measures. German manufacturing has struggled in recent years, driven partly by higher energy prices.

Mark Dowding, Chief Investment Officer at BlueBay, notes:

“With Germany paying six times as much for its energy compared to its industrial competitors, it’s no small wonder that the economy continues to struggle. VW’s move to shutter German production highlights policy failure, in the pursuit of an environmental agenda which feels poorly conceived. It remains ironic to observe how German dependency on dirty coal has resulted from a national rejection of nuclear, and there is a sense that an institutional rethink may be required.”

Bonjour, Monsieur Barnier

In France, some political resolution arrived last week with President Macron appointing Michel Barnier as the new prime minister. Known for his role in the Brexit negotiations, Barnier now faces the challenge of navigating a fragmented parliament without a clear majority.

Wealth Check

Balancing ethics and investments: Tips for professional services specialists

Accountants, lawyers and other professionals can benefit from expert financial advice, just as their peers in different fields do. However, that advice may need to address unique concerns to ensure your financial decisions reflect your professional standards.

Obi Nnochiri, Head of Private Client Consultancy at St. James’s Place, warns:

“The level of scrutiny you face as someone working in professional services may be significantly higher. You need financial advice that ensures the decisions you take can stand up to that scrutiny; otherwise, you’re at risk of reputational damage, professional sanction or even criminal prosecution.”

Conflicts of interest are a good example of the potential danger to your professional integrity. Investing in a business you also work with could create ethical issues, as your personal investments intersect with your professional dealings.

Insider trading poses a more serious risk. As a professional adviser, you frequently access confidential information that can impact a company’s value. Trading shares of that company before such information is publicly disclosed can lead to serious legal consequences, including criminal charges.

Tax planning also presents challenges. With HMRC tightening its stance on tax avoidance, professionals arguably face higher stakes in regard to a dispute with the tax authorities. Those working in professional services could risk your reputation for professional integrity and, worse still, could lead to sanctions from your regulatory body.

What’s more, if you run your own business, such as a partner in a law firm or accountancy practice, your financial advice needs to reflect the unique aspects of your situation. Variable income, through dividends, bonuses or partnership distributions, requires careful tax planning to avoid pitfalls.

The right financial adviser will fully understand the nuances of your profession and will help you secure your financial future while protecting your professional integrity.

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

Movers and shakers in the US job market. While a slight drop in the unemployment rate last week would have been a reason for relief for US policy makers, this would be balanced out by slightly weaker payroll data and a move higher in wage growth.

The Last Word

“All political forces will have to be respected and listened to, and I mean all.”

– New French Prime Minister Michel Barnier on his new role

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SJP approved 09/09/2024