Moving Parts #24

Review of October

After several months of solid gains, global equity markets were generally lower during October. The UK equity market was no exception, and the iShares UK Equity Index tracker fell -1.47% over the period. ? Notwithstanding recent moves by western central banks to start cutting interest rates, bond yields moved significantly higher during October, particularly in the US and UK. In the former case, economic data continues to point to a reasonably robust growth outlook and inflation data, for now at least, remains relatively benign. ?

Meanwhile, it was a similar story in the UK as the much anticipated first Labour government budget for nearly 15 years was delivered at the end of the month. Whilst most of the tax increases and additional spending commitments were well trailed in advance, it was the scale of additional government borrowing over the next few years which surprised markets and added fuel to the recent rise in bond yields

US Politics

The results of the U.S. election came in more swiftly than many anticipated, marking a significant political shift with Donald Trump’s return to office. The Financial Times described the election as “a stunning political comeback” for Trump, emphasising the renewed focus on policies favouring corporate tax cuts and deregulation.

In the short term, some market volatility is to be expected as investors digest the implications of the US election. While we may see fluctuations in both equity and bond markets, it’s important to remember that markets tend to refocus on long-term fundamentals after the initial adjustment period.

In Summary?

Looking beyond the immediate future however, we continue to believe there are significant grounds for optimism regarding the equity market outlook as we move towards 2025. The outlook for US fiscal policy remains highly stimulatory alongside a gradual reduction in interest rates from the Federal Reserve. Meanwhile, the Chinese authorities are showing a much greater degree of commitment to stimulating economic growth now than has been the case for several years. Given the US and China represent the two largest economies in the world, these measures are highly supportive for global growth going forwards.?

Here in the UK, whilst there is an inevitable degree of short-term angst from the business community regarding some of the new governments specific tax policies, we still believe the broad shape of the economic outlook remains positive. We remain enthused by the consumer outlook and the prospects of improved consumer spending, always a key driver of the UK economy, aided by a continued, gradual reduction in interest rates. We also remain optimistic that, post a highly uncertain period in the lead up to the budget, both consumer and business confidence can continue to recover in the period ahead.