This month, we’re introducing what we hope will be the first in a new blog series of quarterly investment updates providing you with the latest news from the UK and global markets.
In a constantly shifting financial landscape, we can help you build a picture of the wider market in which we operate on your behalf and provide reassurance that your money is in safe hands.
Out with the old, in with the new
As we enter the second half of 2024, longer days and occasional bursts of sunshine also bring winds of change, both politically and across the markets.
The most welcome improvement is in the record-breaking FTSE 100, currently sitting at roughly 8,250 (as of 12 July 2024). But the record high isn’t good news for everyone.
Index “reshuffles” occur after each quarterly review, via an assessment of market capitalisation. Too large a drop means a company faces demotion from the FTSE 100 to the lower index, the FTSE 250. The most recent quarterly review has led to a couple of long-stay companies being relegated, including the wealth management giant, St James’s Place (SJP).
Source: Google Finance
It might be unsettling to see household names falling out of the index, but it’s a natural process of the investment cycle so the advice remains “Don’t panic”.
Elections here, there, and everywhere!
FTSE demotions aren’t the only cause of potential upsets this year.
Roughly 54% of the global population will be heading to the polls in 2024, as indicated by the countries in red below.
Source: The Guardian
The UK general election delivered a landmark result, in recent history at least, spelling the end of a 14-year Conservative run.
Many are speculating what this could mean for Britain and the economy, but the same question seems to be at the forefront of all our client conversations: “How will this affect my finances and the economy?”.
Labour wants to be seen as the party of “wealth creation” for working people; improving living standards battered by the cost of living crisis. The BBC recently found that the average working person is only 5% better off now than they were in the wake of the 2008 global financial crisis (if inflation is removed).
Despite plans to raise funds via VAT on private school fees, and squeezing non-domiciled taxpayers, the reality is that Labour will inherit a stagnating economy.
Most analysts agreed pre-election that regardless of a Labour or Conservative government the overall economy would most likely be unaffected, with inflation predicted to fall regardless of the victor. You can read more about What the 2024 general election could mean for your finances in our latest blog.
Source: Timeline (2024)
Our close neighbours in France recently followed the UK’s suit in calling a snap election. While Macron’s presidency is safe, many view his decision as an ill-timed gamble, creating an opportunity for the far right to gain momentum, even without a majority.
In the US, chants of “crooked Hillary” haven’t aged well, with “crooked Trump” fighting to lead the US in 2025. Despite improvements in the US economy under the incumbent president, it’s Joe Biden’s debate performances that have drawn the most attention.
While politics and markets are correlated, the latter power forward regardless of election results. The lesson here is to keep politics out of your portfolio; stay the course and let the markets do what they do best.
The changing tides of geopolitics
Analysts rarely agree on forecasts. There is, though, one risk factor that all agree on – geopolitical tensions.
The graph below shows some of the major spikes in geopolitical risk since 2018. Goldman Sachs’s research suggests that since 2020, average risk has increased by 21%. The main contributors to this increase have been recent Middle Eastern tensions, the ongoing war in Ukraine, and US/China relations.
Source: Bloomberg
Currently, China represents roughly 30% of the (FTSE) emerging markets investable universe, and several countries rely on Chinese goods and manufacturing. Tensions here are already causing uncertainty across global markets. The result of the US election will be key here.
The effects of Russia’s invasion of Ukraine were felt in the UK back in 2022 when energy costs and grocery prices soared. Middle Eastern tensions, meanwhile, could see a spike in market volatility as the price of oil and gold rise.
Source: Schroders
In the face of adversity, sometimes it is the small companies that are nimble enough to adjust and thrive. Large corporations could well turn to the relative stability of domestic firms, offering a potential silver lining.
Your quarterly market update
Asset Class Returns
This quarter, global markets have been volatile but growth has persisted, reflecting the ability of market participants to evolve and adapt to the ever-changing landscape.
Global Equity
Global equities too showed increased volatility. In April, the S&P 500 dipped by 4% – its first monthly decline since October 2023. A similar pattern emerged in Europe, where major indices dropped in April but swiftly recovered in May, only to fluctuate again in June as investors anxiously await cuts to interest rates.
Growth, though, persisted, with the S&P 500, FTSE 100, and MSCI Europe reaching all-time highs this quarter.
United Kingdom
A welcome surprise over the last three months was the performance of the UK equity market. Despite a difficult June, both the FTSE 100 and the FTSE All-Share Index have risen more than 3% since March and are up over 6.5% since the start of the year.
Global Fixed-Income
The global fixed-income market continues to face both challenges and opportunities as expectations of base rate cuts have been repeatedly pushed back.
This delay has kept yields of fixed-income assets high. This negatively impacted bond funds last year but over the long term, higher yields will benefit investors.
Get in touch
If you have any questions about your long-term investments and the current market outlook, speak to us now. Please contact us at info@janesmithfinancial.com or call 01234 713131.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Bibliography
Barrs, L & Gambarini, S. (2024). The New Geopolitics. Goldman Sachs EMEA Investment Forum. 22nd May 2024, London.
Baltussen, G; Fang, D; Gupta, A.; Northern Trust, (2024). What Makes Small Cap So Attractive.
BlackRock, (2024, June 28). Geopolitical Risk Dashboard. Retrieved from: https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/geopolitical-risk-dashboard
Bloomberg UK, (2024, May 20). JPMorgan’s Kolanovic Is Last Prominent Bear as Mike Wilson Folds. Retrieved from: https://www.bloomberg.com/news/articles/2024-05-20/jpmorgan-s-kolanovic-is-last-prominent-bear-as-mike-wilson-folds?embedded-checkout=true
Capital Economics, (2024, May 22). What will the July general election mean for the economy? Retrieved from: https://www.capitaleconomics.com/publications/uk-economics-update/what-will-july-general-election-mean-economy
European Commission, (2022, April 20). In focus: Reducing the EU’s dependence on imported fossil fuels. Retrieved from: https://commission.europa.eu/news/focus-reducing-eus-dependence-imported-fossil-fuels-2022-04-20_en
EY Parthenon, (2023, December 12). Top 10 geopolitical developments for 2024. Retrieved from: https://www.ey.com/en_gl/insights/geostrategy/2024-geostrategic-outlook
FN, Financial News (2024, June 13). UK equity fund exodus continues as investors yank more than £8bn. Retrieved from: https://www.fnlondon.com/articles/uk-equity-fund-exodus-continues-as-investors-yank-more-than-8bn-9e42ef20
FT Adviser, (2024, May 02). Fed’s rate decision to put pressure on emerging market central banks. Retrieved from: https://www.ftadviser.com/investments/2024/05/02/fed-s-decision-to-put-pressure-on-emerging-market-central-banks/
Goldman Sachs, (2024, February 22). How the world’s record share of elections will ripple through the economy. Retrieved from: https://www.goldmansachs.com/intelligence/pages/how-the-worlds-record-share-of-elections-ripple.html
London Stock Exchange Group, (2024, May). FTSE 100 Historic Additions and Deletions. Retrieved from: https://www.lseg.com/content/dam/ftse-russell/en_us/documents/policy-documents/ftse-100-constituent-history.pdf
Nuclear Engineering International, (2024, May 30). Uranium price trends sending market signals. Retrieved from: https://www.neimagazine.com/nuclear-markets/uranium-price-trends-sending-market-signals/
Schroders, (2024, May 26). Middle East conflict and market responses: what does it mean for investors? Retrieved from: https://www.schroders.com/en-gb/uk/institutional/insights/middle-east-tensions-and-market-responses-what-does-it-mean-for-investors-/
The Telegraph, (2018, December 02). The FTSE reshuffle is always significant but rarely a surprise. Retrieved from: https://www.telegraph.co.uk/business/2018/12/02/ftse-reshuffle-always-significant-rarely-surprise/
Vanguard, (2023, December 12). Why bonds are back thanks to higher rates. Retrieved from: https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/why-bonds-are-back-thanks-to-higher-rates
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