WeekWatch

Stock Take

“Everyone has a plan until they get punched in the face.” Mike Tyson was better known for his boxing than his wisdom, but he had a point. Last week, the US Federal Reserve was duly obliged to ditch the plan it had before the recent banking chaos erupted.

In the tumultuous week following Fed chair Jay Powell’s congressional testimony, interest rate expectations had shifted from a 0.5%-point hike to only a 50/50 chance of a 0.25% rise. On Tuesday, Powell confirmed a quarter-point increase and made it clear that the Fed had scaled back its tightening plans because of the banking failures. He also suggested that the resultant tightening in credit conditions was equivalent to one rate hike or possibly more.

At 4.75%-5%, the key interest rate is at its highest level since 2007. Notably, the Fed toned down its previous message that “ongoing” increases would be needed, saying instead that “Some additional policy firming may be appropriate.”

The banking crisis is a sign that tighter policy is biting and, in our view, will tame inflation once the lagged effects have been allowed to come through,” observed Keith Wade of Schroders.

However, Wade pointed out that, whilst the central bank and the markets are both looking for one more hike in May, after that their expectations diverge. The Fed committee members anticipate keeping rates on hold through 2024, whereas the market is expecting a 0.5% cut by the end of this year.

Investor fears over the banking crisis eased in the early part of the week in the aftermath of the rescue deal for Credit Suisse and reassurance from central banks around the world about the security of their respective banking sectors. “Bank businesses are much more conservative, capital is multiple times higher than it was in 2008, liquidity is closely regulated, and central banks are in a much better place to respond given their experiences since 2008,” commented Jonathan Harris of Schroders.

On Tuesday came news of a surprise jump in UK inflation, which rose 10.4% in the year to February from 10.1% in January. Food prices increased at the fastest rate in 45 years, with the shortage of salad and vegetables a significant factor.

The inflation news only added to expectations that the Bank of England (BoE) would raise interest rates again, which it did. Thursday’s announcement of a further 0.25% increase, taking the base rate up to 4.25%, was the eleventh time rates have been put up since December 2021.

BoE governor, Andrew Bailey, said he was more optimistic that the UK can avoid recession. The Bank said it now expects slight growth in the second quarter of the year having anticipated last month it would decline by 0.4%. However, Bailey warned businesses against raising prices and that if inflation became embedded, interest rates would have to go up further. “If all prices try to beat inflation, we will get higher inflation,” he added.

As the week ended, the Office for National Statistics reported a stronger-than-expected rise in retail sales in February. Sales volumes are back to pre-pandemic levels, but still 3.5% lower than a year ago. However, a look behind the figures showed that sales in discount and second-hand stores boosted the figures, underlining the cost-of-living pressures on shoppers.

The brisk start to the year by major economies was also indicated by an unexpected acceleration in business activity in the eurozone in March, as consumers splashed out on services. Friday’s data added to hopes that the region will dodge a recession, potentially giving the European Central Bank room to continue its tightening policy.

It was the same story in the US, where a survey by S&P showed that business activity in the manufacturing and services sectors gained steam in March. It was the first time since September that business in general reported growth in new orders.

Despite these signs of economic resilience, European banking stocks took another pummelling on Friday as Deutsche Bank became the next target of investor nervousness. German chancellor, Olaf Scholtz, sought to shore up confidence in the country’s biggest bank after its shares fell as much as 14%. Analysts agreed with Scholtz’s assessment that Deutsche is not the next Credit Suisse. “We view this as an irrational market,” observed Andrew Coombs of Citigroup.

The S&P 500 ended another volatile week in marginal positive territory, as did key UK and European indices. Following a risk-on tone at the start of the year, stock market leadership has shifted to more defensive and growth sectors like healthcare and consumers staples over the last month, highlighting again the importance of a diversified portfolio strategy.

Wealth Check

Attention-deficit hyperactivity disorder (ADHD) is a neurodevelopmental condition with symptoms that include difficulty with concentration and focus, plus sometimes impulsive and hyperactive behaviour. Although it’s often associated with children, a growing number of people are receiving a diagnosis at a later stage in their life.

ADHD can have an impact on many aspects of adult life, including work, personal relationships and finances.

For example, impulsive behaviour – a common trait among people with ADHD – can make you overspend and buy things you can’t afford. Research found that almost half (48%) of respondents with ADHD said they often spent money impulsively, compared to just 12% of the general population. Forgetfulness is also a problem – those with ADHD are almost three times more likely to miss bill payments occasionally or often (49%) than those without the condition (18%).¹

Jake Bevans, Specialist Escalation Adviser – Technical Services at Technical Connection at SJP, understands this; he was diagnosed with ADHD six months ago.

Working out whether something is an ADHD symptom or part of his personality can be challenging, explains Jake. “I went for a long time without being diagnosed so I have developed coping mechanisms,” he adds.

If you have ADHD, Jake recommends being clear during the first meeting about how you’d like to work with a financial adviser. This may not mean stating that you have ADHD but could simply involve asking for reminders of things you need to do, as you can sometimes be forgetful when it comes to topics you aren’t engaged with.

This advice is the same for everyone dealing with advisers for the first time, but it’s more significant for neurodiverse clients. That way, the adviser will know they may need to go the extra mile to help you as a client with ADHD, says Jake.

“It’s worth highlighting to your adviser that understanding the ‘why’ is more important to you than the ‘how’; the ‘why’ is what will keep you interested,” Jake adds. “A good financial adviser should make this clear anyway. As for the ‘how’, if you can be part of the financial problem-solving, it may also help with engagement and commitment.”

Source: ¹ Living With ADHD Can Cost You an Extra £1,600 a Year Because of Difficulties Managing Your Money, Monzo.com, June 2022 (from a survey of 506 people living with ADHD, with a shorter survey of 2,068 UK adults to provide comparison answers).

In The Picture

With tax year-end in the UK rapidly approaching, it’s important to check you’re making full use of your money, including your pension and ISA allowances

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.

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

Watch the video

The Last Word

“Between short-term opinion polls and the broader interest of the nation, I choose (the latter). If it is necessary to accept unpopularity today, I will accept it.”

Emmanuel Macron, President of France, defends the recent increase to retirement age in France.

Schroders is a fund manager 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 27/03/2023