12 December 2023

Stock Take

With the Christmas break rapidly approaching, UK investors will be hoping for an early present from the Bank of England’s Monetary Policy Committee when they meet later this week. It’s widely expected to keep interest at the current rate of 5.25%.

Certainly, this view would have been reinforced last week, when the Bank’s November Inflation Attitudes Survey revealed public expectations of inflation had fallen to their lowest level in two years. The median expectation of the rate of inflation over the coming year was 3.3%, compared to 3.6% in the August edition of the survey.

These surveys can act as a useful indicator. If employers anticipate lower inflation, it suggests wage growth may also slow. As such, the survey forms part of the Monetary Policy Committee’s extensive dataset for deciding on interest rates.

That said, it wasn’t all good news. This morning, the Confederation of British Industry said it expected another year of weak growth for the UK economy in 2024. Following GDP growth of 0.6% in 2023, the Confederation now expects growth of just 0.8% in 2024. In particular, it predicts that growth in consumer spending will remain weak next year thanks to the higher interest rates taking a harder bite out of household incomes.

On a similar note, Schroders said it expects the UK to fall into recession in the first half of 2024.

With a General Election likely to be called next year, this might make for a challenging back drop for the sitting Government. From an investment point of view, it’s important to remember that most revenues in the FTSE 100 come from abroad. Therefore, even if the wider UK economy might be struggling, there will remain opportunities for fund managers to find growth.

Turning to mainland Europe, equities maintained their recent rally last week. There is growing optimism that the European Central Bank (ECB) may cut interest rates in the not-too-distant future.

The slowdown in inflation over the past few months has fuelled these hopes, with headline inflation now only modestly ahead of the ECB’s target of 2.0%. Last week saw several senior policymakers signal that future rate increases are unlikely given the disinflationary backdrop. This helped lift the MSCI Europe ex. UK Index by 1.6% by the close of play on Friday.

The ECB will host its final policy meeting of the year this week and, whilst no changes are expected to interest rates on this occasion, any hint of a near-term change in direction will be welcomed by the market.

In the US, the S&P 500 inched 0.2% higher. Once again, growth stocks outperformed their value counterparts thanks to the likes of Alphabet and Apple, the latter of which returned to a $3 trillion market capitalisation.

Led by large tech companies such as these, US equities have led the way in global markets over 2023. However, Eoin Walsh, Partner at TwentyFour Asset Management, warned that US consumer sentiment is weakening, and this might prove a challenge in 2024.

Walsh noted: “The US economy looks to be in ‘late cycle’, and therefore more vulnerable to an external shock – although it is impossible to predict, or time, an event like this. However, should the economy suffer a significant slowdown or recession, we think it will very likely have been caused by the Fed’s rate-hiking policy – but importantly, the Fed is now in a place to help again by cutting rates. This is a strong position to be in, and healthier for the market and while we think the Fed will be supportive, we are not predicting a return of low, COVID-era rates or quantitative easing.”

Adding further unpredictability to the US market is the upcoming Presidential election, due to be held next year. Currently, it seems the election will once again see Joe Biden face off against Donald Trump, and at the time of writing, the election looks like it could be extremely close.

Wealth Check

When you’re in your 40s and 50s, you can sometimes feel like you’re financing three generations, not just one. Many people find themselves caught in the ‘sandwich’ generation, responsible for both their children’s future financial wellbeing and the wellbeing of their parents in later life. At the same time, you may also be thinking about making the most of your investments so that you’ve got enough money to enjoy your own retirement.

“Your priorities change over time, especially when you’re working out how to balance your own financial wellbeing with that of your children’s in the future,” says Tony Clark, Senior Propositions Manager at St. James’s Place. “Our mindset about money is changing, just as our attitude to work and careers is changing. Our personal goals become family goals.

“Money is moving up, down and across generations. Nowadays, people are thinking ‘how can I make the most of my money for me and my family?’” says Tony. “Where we can add real value and peace of mind is helping make sure that it’s happening in the most tax-efficient and future-proof way.”

With so many calls on your money, it makes sense to take advantage of the tax allowances that are right in front of you. This includes even the ones we’re most familiar with.

In the UK, ISAs are a simple and tax-friendly way to get started if you haven’t already. Cash ISAs make a good, tax-efficient home for rainy-day funds, and Stocks & Shares ISAs can provide the potential for growth from your investments to help achieve your longer-term ambitions, from buying a new home to affording a great education for your children.

Tax-efficient savings could help your loved ones with long-term care costs, taking a weight off their mind and yours.

Most of the tax allowances and tax reliefs you can claim are on a use-it-or-lose-it basis, so planning ahead is important, especially as tax-year end in April is approaching.

“If you’re thinking about moving money around, or splitting your money, have a chat with your adviser,” says Tony.

“Talking your options through with an expert who understands your financial goals as a family will help you feel confident about the choices you’re making for your children.”

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.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.

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

Cash ISAs are not available through St. James’s Place.

In The Picture

The so-called ‘Magnificent Seven’ US tech companies now make up almost as much of the MSCI All Country World Index as Japan, France, Canada, China, and the UK put together.

Data as at 30 November 2023.

Source: LSEG Datastream, Schroders.

The Last Word

“I didn’t think I was even going to be invited onto this show, let alone be sat here [on the winner’s throne].”

Radio presenter Sam Thompson expresses his surprise after winning this year’s I’m a Celebrity Get Me Out Of Here, which attracted an average daily audience of 6.6 million.

Schroders and TwentyFour Asset Management 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.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark 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 2023; 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 11/12/2023

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