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Market commentary: Navigating potential slowdowns

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Navigating potential slowdowns and corrections as investors grapple with mixed signals from economic indicators

The previous quarter has revealed a complex tapestry of global market dynamics, underscored by a notable downturn in equities during August. This period has been marked by a convergence of factors, including economic vulnerabilities in the US, which have sent ripples through global markets. Understanding these trends becomes paramount in navigating potential slowdowns and corrections as investors grapple with mixed signals from economic indicators like inflation and consumer confidence.

The UK experienced a dramatic swing in market sentiment, initially buoyed by political optimism following a major electoral shift. However, this enthusiasm was quickly overshadowed by broader economic concerns and geopolitical tensions, leading to a slump in equities. This underscores the unpredictable nature of market dynamics and the need for a diversified approach to withstand such volatility.

In the Eurozone, resilience in specific sectors was offset by political uncertainties and regional disparities, particularly highlighted by Germany’s economic contraction. The mixed economic data and political stalemates necessitate a vigilant approach to understanding local and regional market influences, with an eye on potential opportunities amidst these challenges.

The US market reflected a similar narrative, with gains in July overshadowed by August’s downturn. While potential interest rate cuts offered some hope, the overarching concerns of a recession and political shifts added complexity to market dynamics. This highlights the intricate interplay of economic and political factors that investors must consider when strategising their portfolios.

Japan’s experience during this period illustrates the challenges and opportunities within a volatile market landscape. Currency fluctuations and central bank actions significantly impacted various sectors, necessitating strategic diversification and a focus on value-oriented investments. This serves as a reminder of the importance of adapting to changing market conditions through informed investment decisions.

Overall, the global bond market’s performance in July, followed by challenges in August, emphasises the ever-changing nature of economic landscapes. Maintaining a diversified investment strategy, being vigilant and understanding market trends are critical for investors to effectively manage risks and capitalise on opportunities in this complex environment. As we move forward, continuous monitoring and strategic positioning will be essential in navigating the evolving global economy.

For a full breakdown, please click here download our Quarterly Market Commentary.

Quarterly Market Commentary

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Welcome to our Quarterly Market Commentary

In this market commentary over the previous quarter, global equities took a sizeable downturn in August. Investors and market analysts have been looking to make sense of the turbulent market dynamics. This unexpected downturn has been attributed to many factors contributing to the volatile environment.

To download your Quarterly Market Commentary, head to our Downloads page:

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Market commentary: Investors reassess positions

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Quarterly Market Commentary October 2024

Investors reassess positions amidst high valuations and potential corrections in stock prices.

Looking back over the last quarter, global equities faced a notable downturn in August, with the US economy at the centre of investor scrutiny. Mixed economic indicators, inflationary pressures and interest rate fluctuations contributed to widespread market anxiety.

Concerns about a potential US economic slowdown prompted sell-offs across various sectors as investors reassessed their positions amidst high valuations and potential
corrections in stock prices.

UK equities experienced a turbulent August, initially buoyed by a Labour Party election victory that sparked optimism for economic recovery.

However, this optimism was short-lived as broader economic concerns and geopolitical tensions significantly declined the FTSE 100. Despite a promising start, the UK market faced challenges due
to adverse economic data and diminishing investor confidence.

The Eurozone displayed resilience in July, with gains led by the healthcare, utilities and real estate sectors. However, August shifted sentiment as global market downturns and economic apprehensions impacted the region. Political uncertainties, such as France’s inconclusive parliamentary elections, added to the Eurozone’s economic challenges and growth prospects.

In the US, August’s downturn overshadowed July’s initial market gains. Despite the Federal Reserve’s potential rate cut and improved inflation data, concerns about a recession and political shifts, including President Biden’s withdrawal from the presidential race, affected market dynamics. Investors recalibrated their expectations in response to these complex economic and political factors.

Japan’s market experienced significant volatility, with the yen’s appreciation impacting exporters and equity sectors. The Bank of Japan’s rate hike supported the yen, while small-cap and value investments demonstrated resilience. Economic concerns contributed to further market fluctuations in August, highlighting the need for strategic diversification in investment portfolios.

Emerging markets showed resilience in July, benefiting from a weaker dollar and potential US rate cuts. However, challenges in China and Taiwan, along with currency depreciation in Turkey and interest rate delays in Poland, tempered gains. By August, increased volatility and geopolitical uncertainties reshaped the emerging market landscape, demanding adaptable investment strategies. Meanwhile, global bonds enjoyed a positive July, driven by dropping yields and central bank actions, though they faced renewed challenges in August due to economic concerns.

For a full breakdown, please click here download our Quarterly Market Commentary.

Free Guide: The Principles of Growing your Money

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Investing to beat inflation and market fluctuations to build a nest egg for the future

Investing can be an intimidating and complex topic, but it doesn’t have to be with professional financial advice.

Understanding the basic truths of investing will help you make better decisions, regardless of how much money you may or may not have.

By understanding these principles, you’ll be one step closer to achieving your long-term goals.

If you would like to know more about investing to beat inflation, please download your free guide below:

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8 Principles of Growing your Money

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Investing your money could be an effective way to reach your long-term goals and aspirations. By investing your money, you could potentially earn a higher return than if you were to simply save it in a low-interest savings account. This means that over time, your money could grow substantially, giving you a better chance of achieving your financial goals. For more information please download our free guide:

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5 fundamentals for successful investing during a General Election

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How could the general election impact your finances and investments?

The upcoming general election could bring significant changes to your financial planning and investment strategies.

Please get in touch with us if you have any questions or want to reassess your situation.

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Investing during the time of a General Election

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Set and prioritise your financial objectives

Your investment journey requires a clear plan, which includes understanding your unique goals and the strategies to achieve them.

Are you investing for a specific purpose? Do you aim for investment growth, income, or both? Having a well-defined plan prevents deviation and ensures your decisions align with your investment goals.

Remember, there’s no universal approach to achieving financial objectives. Your goals should reflect your individual circumstances, preferences and ambitions. By identifying and prioritising your financial objectives, you can concentrate on what’s most important in a sequence that suits you. This step also guides you in making necessary compromises.

Ensure smooth portfolio performance

Investing doesn’t necessitate a large initial sum. Drip-feeding an affordable amount each month – or gradually depleting a lump sum – can be advantageous in times of geopolitical, stock market and economic uncertainty. Known as pound cost averaging, this can offer a safeguard against value depreciation in markets that inherently have the propensity to decline and ascend.

Rather than committing a substantial amount of money at a single market point, which a price drop could potentially follow, regular investments would purchase units as the prices of the underlying assets decrease. This could lead to obtaining more units for your capital, resulting in a higher return if the market situation becomes favourable and prices start rising.

Diversify your portfolio

‘Don’t put all your eggs in one basket’ is sage advice when investing.

Diversification spreads risk across various investments and sectors, helping you navigate market volatility. Asset allocation and diversification allow
you to create an investment mix with potential for growth and a level of risk that suits your comfort zone.

In a diversified portfolio, the less correlated the assets, the better. The concept is straightforward: if you invest everything in one sector – like technology – and it plummets due to regulatory changes, your investment suffers too.

Regularly review your portfolio

Monitoring your investment portfolio ensures it aligns with your financial objectives and you’re not excessively exposed to risks. Rebalancing is an essential practice in this process. It involves adjusting the allocations of different assets within your portfolio to maintain the ‘weight’ or proportion that best matches your initial investment goal.

Market performance can cause the value of each holding in your portfolio to rise or fall over time, altering its proportion within the overall portfolio. As these proportions deviate from their original weightings, the risk profile of your portfolio changes accordingly.

High-return assets typically carry higher risk, meaning these high-risk investments may increasingly dominate your portfolio over extended periods, elevating your risk level beyond your initial plan.

Practise the art of patience

Long-term investment goals require ample patience. While prices fluctuate daily, adopting a buy-and-hold strategy is crucial. Avoid attempting to time the market or base decisions on short-term fluctuations. Market timing – predicting changes in stock prices or index values – often leads to poor decision-making.

Instead, focus on your overall investment goals and adhere to your plan. As many investors say, ‘There are only two types of people when it comes to market timing: those who can’t do it, and those who haven’t realised they can’t.’ If you’re patient enough to ignore the noise, the market will eventually recognise an asset’s underlying value.

If you’d like to know more about how the general election could impact your finances and investments, download our free election guide:

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Changes to Individual Savings Accounts in 2024 

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Why savers and investors now have a more flexible approach 

Individual Savings Accounts (ISAs) offer a versatile and tax-efficient way to save for the future, whether for yourself, your children or grandchildren. Now that we have entered the new financial year, on 6 April 2024, significant changes to ISAs have been introduced. 

Since April 6, savers and investors have had a more flexible approach to using their ISA allowance. For the first time, individuals can open multiple accounts of the same type of ISA within a single tax year, from 6 April one year to 5 April the next, provided they do not exceed the annual ISA limit. This marks a departure from previous rules, which annually restricted savers to one account per ISA type. 

Partial transfers and the British ISA 

In addition to this newfound flexibility, the rules now permit partial transfers of funds from current tax year ISAs into different types of ISAs, enhancing the ability to tailor savings strategies to personal needs. Furthermore, the government has proposed a new ‘British ISA’ featuring a separate £5,000 allowance aimed at investments in UK-based companies on the UK stock market. 

The Chancellor’s announcement of the British ISA during this year’s Spring Budget seeks to complement the existing £20,000 annual ISA allowance. This initiative is still under consultation, with a deadline set for 6 June, signalling a potential boost for domestic investment. 

Diverse spectrum of ISAs 

The ISA regime offers a variety of options to cater to different financial goals and risk appetites. Whether prioritising safety, growth or a mix of both, there’s an ISA type to match most requirements. From Cash ISAs, known for their simplicity and tax efficiency, to Stocks & Shares ISAs, which offer the potential for higher returns albeit with increased risk, choosing the right ISA depends heavily on individual circumstances. 

Cash ISAs 

Cash ISAs serve as a cornerstone for risk-averse savers, providing a straightforward, tax-efficient haven for cash savings. Cash ISA products can be easy access accounts that allow immediate withdrawals or fixed rate accounts that reward savers for committing their funds for a predefined period. Although these accounts can offer both higher and lower interest rates typically offer lower interest rates than standard savings accounts, they present a valuable tax shield, especially for those who have maximised their savings allowance or anticipate doing so. 

 The allure of Cash ISAs lies in their tax advantages. Interest earned within these accounts does not contribute to the saver’s personal savings allowance, thereby offering a tax-efficient growth environment for savings. This feature is particularly beneficial for higher rate taxpayers and those with substantial savings, making Cash ISAs an option despite potentially lower interest rates compared to non-ISA savings accounts. 

Stocks & Shares ISAs 

Stocks & Shares ISAs, sometimes referred to as ‘investment ISAs’, present an opportunity for individuals to diversify their investment portfolio across a broad spectrum, including collective investment funds, Exchange Traded Funds (ETFs), investment trusts, gilts, bonds, and stocks and shares. This form of investment carries an inherent risk since the value can fluctuate significantly; however, historically, the stock market has offered returns that surpass those of traditional savings accounts over extended periods. 

Investors can choose investment funds within a Stocks & Shares ISA, where funds are amalgamated with those of other investors and managed by a professional fund manager, diluting the risk associated with individual investments failing. 

Proceeds from Stocks & Shares ISAs are tax efficient. This encompasses both capital gains and dividends derived from the investments within the ISA. The convenience of not having to report these investments on a tax return simplifies the investment process, making Stocks & Shares ISAs an appealing starting point for newcomers to the investment world. 

Lifetime ISAs 

The Lifetime Individual Savings Account (ISA) presents a unique opportunity for individuals aged between 18 and 40, potentially benefiting your children or grandchildren. For each pound deposited into the account, the government offers an additional 25p, tax-free. With an annual contribution limit of £4,000, savers can receive a maximum bonus of £1,000 per year. 

This fund can be used to purchase a first home worth up to £450,000 or for retirement savings, functioning similarly to a pension scheme. It is important to note that funds can be freely accessed after the age of 60 to supplement retirement income. However, early withdrawals for other purposes incur a 25% penalty. 

The Lifetime ISA is available in two forms: Cash ISA and Stocks & Shares ISA. The market for Cash ISAs within this category is limited, with only a handful of providers. The £4,000 contribution towards a Lifetime ISA is counted within the broader £20,000 annual ISA allowance. 

Junior ISAs 

Turning our attention to Junior ISAs (JISA), these are designed for individuals under the age of 18. This financial year allows for an investment of up to £9,000 in either cash or stocks and shares. Access to the funds is restricted until the beneficiary turns 18, at which point full control over the account is granted. From the age of 16, they can manage the account, making it an ideal option for those looking to foster financial independence in their youth. From the start of the 2024/25 tax year, the minimum age to open a Cash ISA increased to 18. 

ISA transfers 

The flexibility to transfer across different ISA providers and types (from cash to stocks and shares or vice versa) enhances the appeal of ISAs. However, verifying transfer policies with your chosen providers is critical, as not all permit transfers. Direct withdrawals and transfers should be avoided to maintain the funds’ tax-efficient status. Instead, the recommended approach involves initiating the transfer through the receiving provider, who will manage the process on your behalf through a straightforward form. 

ISAs and spousal inheritance 

When it comes to managing the financial aftermath of a loved one’s passing, understanding the nuances of how Individual Savings Accounts (ISAs) can be inherited is key. An ISA can be transferred to a surviving spouse while retaining its coveted tax-free status, offering a silver lining during such difficult times. 

However, it’s important to note that no further contributions can be made to the ISA once the original owner has passed away. Nevertheless, any increase in account value during the probate period remains exempt from tax. For the surviving spouse, this transfer includes an additional ISA allowance, which is calculated based on the higher of two values: the cash or investments inherited or the market value of the ISA at the time of the original holder’s death. 

Non-spousal beneficiaries 

The situation becomes markedly different when ISAs are bequeathed to beneficiaries other than the spouse. In these instances, the value of the ISA may fall within the scope of Inheritance Tax (IHT), which is levied at a rate of 40% on portions of the estate exceeding the current £325,000 (2024/25) IHT threshold. This significant tax implication underscores the importance of proactive estate planning to effectively navigate the potential fiscal impact. 

 

If you’d like to discuss your financial future with an Expert Financial Adviser, please get in touch:

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Create personalised, tailored financial plans

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Ellis Bates Directors Ben and Alan discuss how Ellis Bates incorporate the principles of Consumer Duty into every aspect of our client responsibility to offer relevant and effective products and services.

Watch our latest video to find out:

How the Ellis Bates in-house Investment Team help you create your personalised, tailored financial plans
How Ellis Bates independently select the products and services individually tailored to your financial plans
How Ellis Bates tailor the right financial products and services throughout your lifetime and its ever-changing circumstances
How Ellis Bates scan the whole of marketplace to carefully select the right products and services for you to achieve your financial plans
How the Ellis Bates in-house investment team create a suite of products and services geared specifically to your financial plans

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EB Retirement Income Strategies (EBRIS)

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EB Retirement Income Strategies (EBRIS)

In 2023, in response to client demand, we developed our EB Retirement Income Strategies (EBRIS). EBRIS is a combination of our Income and Growth portfolios:

Income Portfolios Growth Portfolios

Every fund focuses on a yield return.

A ‘slow and steady’ approach, usually with lower volatility.

Often more mature businesses than high growth options.

Return some profits immediately through dividends.

Mix of near- and long-term rewards with income and some capital growth.

 More focus on capital appreciation in 5-10 years or more.

Businesses that can grow quicker by retaining profits.

Less emphasis on near-term rewards than long-term potential.

Will naturally hold more volatile investments.

No constraint on mandate of funds, other than overall return of the portfolio.

Returns can come from anywhere.

Our default EBRIS approach is an equal (i.e. 50/50) split between the Income and Growth portfolios. Depending on your individual circumstances and preferences, together we can personalise elements of the strategy – for example:

  • A greater allocation to one portfolio (e.g. Income or Growth) over the other.
  • Replacing the Growth allocation with our Socially Responsible Investing (SRI), Passive or Multi-Asset portfolio.
  • Investing in EBRIS alongside one of our Product Panel solutions.

Why the Standardised Approach?

Research shows that many individuals have not saved sufficiently for their retirement, so they are becoming increasingly reliant on stock market returns to maintain their lifestyle after they finish working. However, volatility in the markets post-COVID has raised concern over expectations of market returns in the years ahead. This leaves investors vulnerable to market shocks.

In these conditions, single solutions can present a heightened risk to investors, due to the possibility of a single solution focusing on a particular investment style.

EBRIS allocates investments across different asset Investment, investment styles, geographic regions, industries/sectors, fund houses and individual companies, among other categories, which helps to mitigate risk. At the same time, we believe that the combination of Income and Growth assets will give a higher probability of meeting your income requirements over the course of retirement, and avoid running out of savings (based on a 4% income requirement).

That said, there will be clear situations where a different mix of strategies, or even a single strategy, will be appropriate for you because of your unique circumstances. If you want to find out more about what would be the best solution for you, then please get in touch with your Financial Advisor.

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