WeekWatch

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Stock Take

The S&P 500 reached a record high last week, as the boom in valuations for large technology companies continued.

This boom has occurred despite a number of uncertainties facing markets this year. These include the 2024 presidential election, which will almost certainly be a rematch between Joe Biden and Donald Trump. While this will likely have the biggest impact on the US, it’s worth noting that there are several elections due this year, including in the UK, India, and Russia.

Geopolitical risks also seem to be heating up. Aside from the ongoing war in Ukraine and events in Israel and Gaza, Houthi attacks on international shipping have continued unabated, while over the weekend three US servicemen were killed and many more injured at a military outpost on the border between Iraq and Jordan. An Iran-backed Iraqi militia has claimed credit.

Despite all these risks and uncertainties, technology share prices have continued to rise on the back of AI hopes. In addition, a belief that interest rates have peaked was bolstered by figures released on Friday, showing US core Personal Consumption Expenditures (PCE) inflation was 2.9% in December, down from 3.2% in November.

PCE inflation uses a different set of data compared to the more traditional Consumer Price Index (CPI) inflation measurement. Although CPI tends to be more widely reported, PCE is the main source used by the Federal Reserve in deciding interest rates.

Despite this, Mark Dowding, Chief Investment Officer at BlueBay, warns against getting too excited about a potential interest rate cut: “Overall, we think a robust economy, coupled with favourable disinflation trends, means the Federal Open Market Committee (FOMC) can afford to be patient and bide its time in the monetary loosening process, and we expect [FOMC Chair] Jerome Powell to take a similar tone.”

Turning to Asia, in what has become a somewhat rare occurrence recently, Chinese equities concluded last week in positive territory. The Shanghai Composite rose by 2.8% in local currency terms with Hong Kong’s Hang Seng Index faring even better with a 4.2% rise. This came after the People’s Bank of China (PBOC) announced a cut in the amount of cash that domestic banks must hold in reserve. The goal is to hopefully boost the amount of lending available to both businesses and consumers to try and stimulate an improvement in the country’s economic recovery.

Whilst the announcement was clearly welcomed by markets, over the weekend property giant Evergrande was ordered to liquidate by a Hong Kong court. This reiterates just how fragile the Chinese financial landscape is right now.

There was good news in Europe, where the European Central Bank (ECB) President Christine Lagarde noted the process of bringing inflation down was working although it remains premature to consider rate cuts for the time being.

Although Lagarde’s words appear to rule out an imminent cut to rates, markets were heartened by her indication that things are heading in the right direction, and the MSCI Europe ex UK rose 3.2% over the week.

It is worth noting over half of ECB staff said they felt Lagarde was performing poorly or very poorly, in a poll of 1,159 members of staff at the central bank, released last week. Lagarde is just over halfway through her eight-year term.

There was also good news for investors in UK companies, as the FTSE 100 rose last week. Unfortunately, some of this was down to a case of ‘bad news being good news.’ Recent attacks by Houthi rebels in Yemen, and continuing worries of wider instability in the Middle East, have helped lift oil prices, which in turn has helped the performance of energy companies. The FTSE 100 has a relatively large energy sector, and therefore benefited.

Wealth Check

Becoming mortgage-free feels fantastic. After all, a mortgage is often the biggest debt we ever take on – and it usually takes up to 25 years to pay it off and own your home outright. That’s decades of putting money aside, comparing interest rates, or shopping for the right mortgage.

Not only will you own what is probably your biggest asset, you’ll also have a comfortable sum each month back in your bank account. And while there’s no harm in rewarding yourself with an extra holiday this year, or changing your car, it’s also a golden opportunity to think about how this money can help your long-term financial wellbeing.

Your financial landscape is changing. Now’s the natural time to focus on what you want from life going forward – and fit your finances to achieve that.

Those few extra hundred pounds every month can seem quite a modest amount; certainly not like a life-changing lottery win. Which is why it can easily be ‘absorbed’ into the household budget or an extra lunch out.

But that extra money can be surprisingly powerful if saved or invested over a longer period. You won’t notice it if you’ve been paying the same amount into the mortgage anyway.

Even if you’re not thinking of stopping work just yet, it’s never too early to start thinking about your retirement.

If, for example, you pay off your mortgage at 57 and work until you’re 67, you could invest the money you save on your mortgage repayments over those ten years. You’ll reap the benefit of compounding – essentially ‘growth on top of growth’, which means your investment has the potential to enjoy a bumper couple of years by the time you’re ready to retire.

More and more of us want our money to help others as well as ourselves; helping our children, or our parents, and hopefully leaving a legacy that might mean your own children can pay off their mortgage early too.

With careful planning and personal financial advice, your money can make all those goals a reality.

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 equities does not provide the security of capital associated with a deposit account with a bank or building society.

In The Picture

With so much information available to us today, it can be hard to know what matters most to our long-term goals. Joe Wiggins, St. James’s Place Investment Research Director, explains how to filter out the noise. You can watch the full interview here

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.

https://sjp.getmediamanager.com/video/65b794860be3e4725270d8d3/53c4e5f5150ba09b0f8b4594?mute=false&autoplay=false&downloadable=false&pageurl=https%3A%2F%2Fpartnership.sjp.co.uk%2Fbarrywells%2Farticle%2Fdetail%2Fsjpp%2Fweekwatch-29-01-2024.html

The Last Word

“We will carry on their commitment to fight terrorism. And have no doubt – we will hold all those responsible to account at a time and in a manner our choosing”.

US President Joe Biden responds after several American servicemen were killed in Iraq.

BlueBay 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 2024. 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 2024; 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 29/01/2024

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