Stock Take

After ending 2023 with a bang, global stock markets started 2024 with a negative week.

Markets ended 2023 strongly as confidence grew that interest rates had, more or less, peaked. The Bank of England, the US Federal Reserve, and the European Central Bank had all stopped increasing rates over the second half of the year as inflation continued to fall from its earlier highs. Many were beginning to ask how soon we’d see interest rates fall, and 2024 was a potential answer.

However, markets can be fickle, and in 2024 we’ve already seen evidence that the year won’t necessarily be smooth sailing.

George Curtis, Portfolio Manager at TwentyFour Asset Management, noted: “Ultimately, with developed market central banks poised to pull the cutting trigger, the market will continue to remain laser-focused on any data that will guide towards that first cut.”

Many of the geopolitical risks from 2023 remain in place around the world. Late last year saw increased attacks on international shipping in the Red Sea by Houthi rebels from Yemen, causing some companies to divert shipping away from the region to potentially longer, more expensive routes. This has a potentially inflationary effect by reducing supply.

There has already been a warning that inflationary fears are not yet over. Last week, it was revealed that inflation actually increased in the Eurozone in December 2023. Prices increased by 2.9% in December, compared to 2.4% in November. This ended six months of continual falls in the region.

Looking beyond the headline figures gave some cause for hope, though. Reduced government subsidies for fuel was a key reason for the increase. In fact, once the more volatile fuel and food prices are removed from the equation, inflation fell from 3.6% to 3.4% over the same period.

The European Central Bank is due to meet later this month to discuss monetary policy. The coming week will see the US release its December inflation figures. Investors and economists will be keen to study the data, as well as any speeches from the Federal Reserve, to indicate their thoughts regarding interest rates.

Already this year, US jobs data has surpassed expectations, with 216,000 new jobs created in December. This was notably stronger than expected. Unfortunately, this was a case of ‘good news is bad news’ for investors. A strong US economy, as indicated by high employment, gives the Federal Reserve more breathing room when it comes to deciding on what to do with interest rates, reducing pressure to lower them early.

Highlighting some of these risks, Mark Dowding, Chief Investment Officer at BlueBay, noted: “When assessing market projections for rate cuts as early as March this year, we see plenty of room for disappointment from the Federal Reserve, European Central Bank and Bank of England. In the US, the economy continues to grow at a healthy pace, and with the housing market activity being stimulated by the recent decline in mortgage rates, we don’t think that the Federal Open Market Committee will be in a hurry to cut rates.

“Meanwhile, we won’t be surprised if inflation data during Q1 proves more durable than many have been expecting. Market participants have been quick to dismiss inflation risks, as headline CPI has declined, yet core inflation remains well above levels compatible with central bank targets.”

All this meant the first week of trading in 2024 was a tough one. The S&P 500 retreated by 1.5% in local currency terms, with the technology-heavy NASDAQ Index faring even worse (3.3%). In Europe, the FTSE 100 and MSCI Europe ex UK indices declined by 0.6% and 0.7%, respectively. European equities had risen for seven straight weeks, reflective of growing optimism around future central bank rate cuts, but that momentum was stopped in its tracks last week.

Wealth Check

New year is a perfect time to reset your money habits – and start with a clean slate. These are our top five resolutions to set you on the path to financial wellbeing.

1. Work out how much you’re really worth

Working out how much you’re worth can be surprisingly reassuring. Tot up all your assets, then think about whether each one is working hard enough for you.

2. Downsize your debts

As important as it is to know how much you’re worth, it’s even more important to know what you owe. That way, you can recognise when normal debts become problem debts.

This is part of ‘cashflow modelling’, giving you an accurate snapshot of all your outgoings and income. You can see if you’re still paying for subscriptions that you thought you’d cancelled, or how much you’re actually spending on food each month.

If your finances are healthier, you could think about downsizing a bigger, long-term debt, such as your mortgage. It’s surprising how much you save in interest by paying off an extra £100 a month.

3. Keep using your tax allowances

Are you making the most of your tax allowances, so you pay less tax? Be aware that tax rules can change, and those like ‘carry forward’ can be complicated. So, it’s always worth speaking to your adviser about the most tax-efficient way to invest, save or gift.

4. Keep your retirement plans on track

Retirement may seem a long way off when you’re busy balancing family budgets. This year, don’t let your personal long-term plans take a back seat. It’s never too late to start saving for retirement.

Pay attention to your pension – if you’re not in the company pension scheme, join it.

5. Make a Will and Power of Attorney

Possibly not top of your new year’s to-do list, but making your Will is one of the most important pieces of financial planning for your family’s future that you’ll ever do.

It’s easy and straightforward to set up a Power of Attorney or make a Will. We’re happy to guide you through – it’ll put your mind at rest.

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.

Please note that Will-writing and Powers of Attorney involve the referral to a service which is separate and distinct to those offered by St. James’s Place and they are not regulated by the Financial Conduct Authority.

In The Picture

Despite recent economic difficulties, unemployment remains relatively low across Western economies, and particularly in the US. 

Sources: ONS, US Bureau of Labor Statistics, Eurostat. Data as at December 2023

The Last Word

“Since the beginning of this year, Japan has been hit by a series of tragic earthquakes and accidents. I hope the bright news of winning an award can bring a smile to everyone’s face, even if only a little.”

Studio Ghibli producer Toshio Suzuki, speaking after ‘The Boy and the Heron’ won the Golden Globe for Best Animated Film.

BlueBay and TwentyFour 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.

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© 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 08/01/2024