Our Autumn Statement Analysis breaks down the Chancellor’s recent announcement, outlining what it means for you and helping you to plan for the upcoming calendar year.
It has been 60 years since the Beatles signed their first record deal. The rock group from Liverpool dominated the industry for nearly a decade – and long after that as individual performers. John Lennon, Paul McCartney, George Harrison, and Ringo Starr created timeless tunes and memorable messages that we can borrow today to portray our economic and financial market outlook.
If a week is a long time in politics, then the near five months since Rishi Sunak’s second 2021 Budget feels close to a lifetime. Back on 27 October, it looked like 2022 would be a year of recovery in which the pandemic faded in the rear-view mirror and ‘transitory’ inflation duly transited to lower levels. It has not worked out like that.
Events in Eastern Europe over the last week have correctly dominated TV, radio, newspaper and online news. It also meant that almost all equity or bond investors made losses during February, many for the second consecutive month unless – like the U.K. equity market – there was high proportional exposure to commodity sector shares.
There is a famous quote by the legendary Belgian professional cyclist Eddy Merckx that he “raced from 1 February to 31 October every year, competed for everything”. Unfortunately for financial markets there is never a defined season, and, whilst 2021 ended positively, January 2022 will go down into the history books as being a little bit more difficult.
The key for writing any monthly report is not to do it too early, especially during the end of November which saw the word Omicron become much better known than just by followers of the Greek alphabet. Whilst progress against COVID-19 challenges have helped almost all developed market stock markets generate attractive returns year-todate, many indices fell during the second half of November following concerns about the new virus strain.
October was generally a positive month for global equity markets, helping to push many developed market indices to new 2021 highs. Whilst COVID-19 challenges remained material and new concerns about gas prices, petrol availability and general delivery concerns became more apparent during the month, so far the average third-quarter corporate earnings season number has been taken well. However, most fixed income markets have continued to struggle this year, even if many 10-year bond yields have not yet returned to levels seen earlier this year.
Less than eight months ago, Rishi Sunak presented a Budget that was anticipating the ending of the pandemic’s impact on the UK economy. He announced extensions and end dates for the furlough scheme, the self-employed income support scheme, reduced VAT for hospitality and the £20 a week uplift to Universal Credit. To finance some of that expenditure, the Chancellor also revealed a 6% increase in corporation tax, deferred until 2023.
As we sit atop our prosperous peak, admiring the views of the fastest economic growth since 1984, the best start to a bull market, and the record-breaking quarter of earnings growth, it’s wise to remember that not too long ago we began our uphill journey from the depths of the COVID-19 ravine. Often, the best views come after the hardest climbs. So now it’s time to catch our breath and peer over the horizon at what’s to come as we begin our descent from this peak. However, just as the summit of one mountain can become the base of another, the investment landscape goes on indefinitely, which makes adhering to a disciplined investment strategy of the utmost importance.
Hopefully you enjoyed a good summer break. August was another positive month for many financial markets, with one pan-European (including the U.K.) index achieving a seventh consecutive advance. Whilst 2021 started with material concerns about COVID-19 challenges, limited vaccination numbers and widespread lockdowns, progress has been made on all fronts. No doubt the late August news that seven further countries have been added to the U.K.’s green travel rules, will further boost hopes that a return to previous norms are closer.
For most investors focused on the U.K., Europe and/or the United States, July was far from an unattractive month in all but a minority of equity sectors. This pleasingly allowed a further building of year-to-date returns. Meanwhile bond market yields generally tightened further. Although fixed income markets remain on average dull performers in 2021, performance has improved in recent months.
Americans, bored in their COVID-induced ‘bubbles,’ turned to board games for fun last year, boosting sales 300%. They rolled the dice, drew the cards, and buffed the skills of cooperation, problem solving, emotional intelligence, and reflective logic — the same competencies critical to successful investment strategies. So, we couldn’t help looking back nostalgically to our favourite games — and probably yours — as we look forward to crafting a sustainable investment game plan.
The fifth month of 2021 will not go down as an important month for global investors. Most equity and bond market investors made some positive – but relatively modest – gains during May. And whilst COVID-19 vaccination progress across many countries has been notable over recent weeks, the general economic outlook across the U.K., United States and Europe has recently improved. Certainly underlying confidence for the rest of this year and into 2022 has improved over recent weeks.
April was another interesting month, with gains across almost all global stock markets led by the United States, but closely followed by the U.K. and Europe. Whilst the former two were significantly aided by continued COVID-19 vaccine progress and associated national reopening, Europe has started to make some progress too.
Sixty years ago, Marshall Nirenberg and Henrich Matthaei began the process of cracking the genetic code. Thanks to their persistence and resilience, today’s scientists developed effective mRNA-based vaccines in record time – saving millions of lives from COVID-19. With the darkest days of the pandemic behind us, investors can also appreciate the resilience of the economy and financial markets and the hopeful prospect of brighter days ahead.
Financial markets are always a three-dimensional jigsaw, with new pieces being added and deleted at whim every business day. But the signals from the last month have been especially difficult to discern. In contrast to the bounce back second quarter, July was a negative month for pan-European markets with the U.K. continuing to lag.
We maintain our belief in the ‘American Dream’ as described by James Truslow Adams, that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement,” regardless of social class or circumstances of birth. We not only acknowledge but embrace that we have work to do as a society, and hope that this year will serve as an inflection point as we advance toward a stronger and more united world.
Over three hundred and fifty years ago, back in 1665, Isaac Newton socially distanced himself from the horrors of the then rampant bubonic plague and – away from his burgeoning academic career at Trinity College in Cambridge – enjoyed a ‘year of wonders’ at his childhood home. During this period he formulated a theory of universal gravitation, explored optics and discovered differential and integral calculus.
The COVID-19 outbreak has led to unprecedented volatility and tremendous declines in wealth, but we have faith that once the pandemic is defeated, the wild swings in the financial markets will abate and prosperity will return. But what cannot be so easily recovered is the loss of a job, the loss of a business, or, worst of all, the loss of a loved one. While it is our duty to provide timely market insights, please know that now, more than ever, the health and safety of you and your families is at the forefront of our minds.
A successful investor faces many hurdles, some of which are external and some internal. Monday’s dramatic fall on the global markets – the worst in a single day for two years, or four years, depending on which major European or American equity index you wished to cite – could not fail to capture attention.
I am not going to ask you about how your New Year resolutions are shaping up, but the observation above about the tenuous nature of many of them is a not unusual occurrence for many of us. Naturally, the same can happen with financial market predictions. Thoughts that appeared valid and respectful considerations about the upcoming twelve months, can seem by the end of January tarnished and facile. Such is the nature of financial markets.