Investing & Performance | 15 November 2024

Monthly update: SOLID ECONOMY UNDERPINS STEADY STOCK markets

Stock markets respond well to US election and UK Autumn Budget, while world economy remains favourable for investors.

WHAT’S HAPPENING IN FINANCIAL MARKETS?

Stock markets have stayed calm over recent weeks despite several potentially disruptive events. The US election, UK Autumn Budget and interest rate cuts in both countries failed to cause any meaningful market volatility.

Following a relatively uneventful October, stocks resumed an upward trend following the US election as the Republican Party’s dominance fuelled expectations of favourable business policies.

Meanwhile, there was no major change to UK stock prices following the Autumn Budget, but domestic companies are performing in line with an improving growth outlook for the country.

Bonds, on the other hand, have been a different story.

Global government bond yields experienced their largest rise in months in October, with prices falling, because of solid economic conditions and diminished expectations around interest rate cuts. Encouraging US economic data on consumer spending, jobs growth and inflation also pushed America’s Treasury yields higher.

Coutts’ Head of Asset Allocation Lilian Chovin said: “The macroeconomic backdrop currently remains positive overall for markets. The new American government’s proposed tax cuts, China’s recent stimulus package and signs of an improving UK economy could further support these conditions.”

But he added: “The proposed increased tariffs from President Trump could hurt non-US businesses, particularly in export-orientated economies such as emerging markets and Europe. This is something we’ll keep a close eye on as part of our ongoing market analysis.”

The value of investments, and the income from them, can go down as well as up, and you may not receive the amount of your original investment. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. 

“The macroeconomic backdrop currently remains positive overall for markets.”

 

Lilian Chovin, Head of Asset Allocation, Coutts

WHAT DOES THIS MEAN FOR YOUR INVESTMENTS?

At Coutts, we continue to favour stocks over bonds in light of the ongoing positive economic conditions. We adopt a global approach within our equity holdings, with a focus on the US which remains a resilient, growing economy.

We have, however, increased our investment in UK stocks – lifting our position from ‘underweight’ to ‘neutral’ and focusing on domestic companies. This is to reflect the country’s improving economic backdrop, with inflation now below the Bank of England’s 2% target and real wages rising.  

Despite the preference for stocks, we continue to hold well-diversified portfolios and funds in the event of any potential volatility. Our investments include US government bonds, for example, which should potentially provide some ballast if stocks drop.

We also hold a fund that uses ‘liquid alternatives’ to provide diversification even if stocks and bonds fall together – not something we expect currently, but possible over the long term.

THIS MONTH’S SPOTLIGHT: EARNINGS SEASON - WHAT ARE THE KEY TAKEAWAYS?

It was a good Q3 company earnings season overall. Most companies had reported their results by the end of October, and Bloomberg calculated that 75% of them beat published forecasts.

Banks were the stars of the season, where stronger than expected results triggered a positive post-results reaction in markets.

Price reactions to organisations’ financial results have been unusually large. According to Bloomberg data, companies that ‘missed’ earnings expectations underperformed the S&P 500 by almost 4% on the day following their announcements – a much larger reaction than usual.

Howard Sparks, Senior Equity Specialist at Coutts, said: “The broader macroeconomic landscape has remained stable and previous concerns of a US recession have abated. This, along with falling inflation and expectations of lower interest rates, appears to have fuelled this solid company earnings season.

“It’s a trend many analysts expect to continue as interest rates look likely to fall further, encouraging people to borrow and spend while lowering company borrowing costs.”

 

Our views in more detail:

If you are a Coutts client and would like to discuss any of this in more detail, please contact your private banker.

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