WeekWatch - 4 May 2021

Stock Take

Despite dipping on Friday, US stocks had another good week as April ended. This contributed to a particularly strong month: the S&P 500 Index of large US companies had its biggest one-month increase since November last year, when vaccine discoveries began acting as a boost for the share prices of many companies.

Some market commentators had expected the election of President Biden to have a negative impact on US stocks, especially given his electoral promises on taxes and wealth distribution. However, the recent strong performance in the US market suggests that such fears appear overblown, at least for now, suggests Mark Dowding of BlueBay Asset Management, co-manager of the St. James's Place Strategic Income fund.

“US equities continue to record new highs in the wake of stable conditions and upbeat corporate earnings. Notwithstanding President Biden outlining progressive-leaning plans for bigger government, higher taxes and greater income redistribution, it seems that stocks have been largely unperturbed.”

“In the period prior to the US elections, there had been a fear that a policy shift in such a liberal direction would be badly received in financial markets, but it seems as if markets are now happy to take this in their stride,” he added.

Recovery data

Meanwhile, earnings results released last month have given promising signs about the recovery prospects of many businesses. Combined with encouraging data about economic recoveries around the world, these appear to have given investors confidence that the economic recovery is under way.

Companies in Europe have exceeded analysts’ expectations over the past month. Goldman Sachs estimated last week that companies in the STOXX Europe 600 Index have beaten earnings estimates by around 15%. It was a similar story for the largest companies in the US.

While the earnings results have brought about some optimism for the future, they also contain clues about what corporate leaders are thinking. According to analysis by Bloomberg, the word ‘inflation’ appeared in last month’s conference calls with top executives twice as often as in the previous quarter’s calls.

Since vaccine programmes started rolling out last year, investors have been trying to calculate whether the economic bounce-back will lead to higher inflation around the world. Although low levels of inflation are normal, there is a concern that, if it grows too high, it could prompt governments and central banks to adapt their policies. Policies such as maintaining low interest rates have supported asset prices since the pandemic took hold last year, and have been especially positive for fast-growing technology companies. The first four months of this year have seen investors ‘rotate’ from these sorts of companies into the ones that they expect will benefit from a broad economic recovery and a new investing environment.

The prospect of higher inflation is something that fund managers are including in their calculations. It’s one of a number of factors they consider when investing your funds, to ensure that they are well positioned for the future.

“Inflation is not something we are too concerned about,” said Clyde Rossouw from Ninety One, manager of the St. James's Place Worldwide Income fund and Continental European funds.

“The companies into which we are interested in investing tend to have pricing power, which means they can raise prices in response to inflation. The more advantaged a business is in terms of its business model, the more it can be effective in its ability to raise prices across the board, and therefore, still price its products or services ahead of whatever the broader inflationary forces are.”

For investors, of course, the best way to deal with uncertainty is to invest for the long -term with a well-diversified portfolio. If your funds are invested in a wide range of assets, then their performance won’t be overly reliant on any one outcome.

Wealth Check

A significant majority of investors lack confidence in managing their retirement savings, according to a recent survey by Freetrade.

This lack of confidence is due in part to a lack of understanding: 80% of people were unable to answer questions related to annuities, annual allowance, or pension drawdown. Worryingly, respondents over the age of 55 showed no greater confidence or understanding when it came to their retirement savings.

Thinking about our retirement in terms of technical concepts like ‘drawdown’ or ‘income’ can feel overwhelming. But it doesn’t have to be.

Start with envisioning the lifestyle you would like to have when you reach retirement, and the objectives you may have for when you retire. Talking through your goals and ideas with a financial adviser can then help you develop a strategy that works for you, and the products that are best suited to your needs.

“If you work backwards from retirement, that helps with working out what you need to do,” says Tony Clark, Senior Propositions Manager at St. James's Place.

A conversation with an expert can set you on track to feeling more secure about your financial future – not only improving your confidence about your long-term retirement savings, but your wellbeing in the here and now.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Source: Freetrade, April 2021; total question respondents 2,000

In The Picture

This week, the UK government is expected to reveal its ‘green list’ of countries that are safe to travel to for summer holidays this year. In this interview, the fund managers of Ninety One reveal how they are thinking about the reopening of economies around the world

The Last Word

"I am feeling fairly optimistic that we will be not completely back to normal, but something which feels a lot more normal by the summer."

Leading epidemiologist Professor Neil Ferguson says that the latest COVID-19 case numbers in the UK are encouraging.

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.

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