Investment Market Update – March 2024

As we settle into 2024, it’s a good time to provide an update on key trends, potential opportunities and risk factors that are shaping your financial progress.

Investors will likely be happy as they review their statements in early 2024. Nearly all asset classes have generated positive returns, boosted by performance across equities and bonds. This obviously follows a few hard years for most investors, so we feel good about the market direction and what is ahead.

The strength has largely been driven by the expectation central banks will cut interest rates in 2024 as the worst of the inflation spike is now considered behind us. Several equity markets now sit at or near all-time highs. Bonds have had a harder time but have also seen a recent uptick. This is a feature of investing – we want different assets that can perform well at various stages of your journey.

On the risk side, it is likely to be a busy year with elections in the UK, US, India, and others. Geopolitical tensions are also quite high, so we should expect bouts of uncertainty. In times like these, it is essential we remind investors that the presence of uncertainty does not imply a scarcity of opportunities.

As Warren Buffett famously said, “Risk comes from not knowing what you are doing”. In this respect, we want to emphasise the importance of focusing on good investing principles and dealing with the conditions we are faced with. We will continue to control everything we can, while managing those factors we cannot control via principles such as diversification.

Recent news announced that the UK fell into a recession late last year, joining other countries including Japan and Germany. This isn’t surprising given the cost-of-living crisis we’ve experienced.

  • Firstly, let’s cover what a recession actually is: The UK defines a recession as two quarters of consecutive declines in gross domestic product (GDP), in other words produced fewer goods and services. GDP is one way to measure the health of an economy.
  • It’s important to note that gross domestic product and share markets are not the same thing.
  • Companies in the UK are very international in nature, with the largest 100 companies generating over two-thirds of their revenue overseas. This means that UK companies are less impacted by the health of the domestic economy.
  • The view from most economists is there are little signs this recession will be severe or lengthy.
  • The key message: be careful judging based solely on the word “recession”.

UK inflation (which measures the general cost of goods and services) has fallen faster than expected. Overall, we still have relatively high inflation compared to recent years, as it remains at 4.0% year-on-year, but the reality is that we’ve had 0% inflation from July 2023 to the end of January 2024.

This means we’re in a good place relative to other countries in the last 7 months and there is a strong likelihood that the inflation rate will fall further in the coming months.

As a result of falling inflation, the Bank of England is expected to cut interest rates this year. The Bank of England has had to raise interest rates 14 times, up to 5.25%, to tame inflation, which has really hurt the economy. Most economists currently expect the Bank of England to cut at least 3 times this year—which would be a welcome relief for many.

We also have elections coming up this year – both in the UK and US – along with 70 elections around the world in 2024. History shows little of elections impacting markets. Yes, we may hit periods of volatility in the lead up, but election years usually deliver positive returns, regardless of whether a Labour or Conservative government gets in. 

At present, we remain cautiously optimistic. Our approach in this environment is to balance risk and opportunity.

The investment managers that we work with see positives in this environment and that there are opportunities to add value in fixed income and select equity markets. This is especially true given the potential interest rate cuts ahead, which will be of benefit to investment returns.

We expect our client portfolios to deliver on their expectations over time. As you know, our approach is to invest in a diversified portfolio, containing a mix of assets that we expect to perform well over the medium to long term, in line with your risk tolerance. This includes international holdings, which can often buffer against any weakness in the UK and helps create a platform to accumulate wealth.

Overall, we feel well placed to advance your financial journey over 2024. Markets have been reasonably kind to us lately and we continue to look ahead with positive intent.

Should you have any questions or require further clarification on any aspect of your financial plan, please do not hesitate to reach out.

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