Please find below our interim Investment Market Update as at 2nd July 2021.
Blue Sky Investment Market Update
No need to book time in your diary!
I am going to give you some respite from having to book a time in your diary to read our update this week!
The main reason being, that this month we will be sending out our quarterly overview which will have lots of information about what we expect moving forward for the investment markets. So, just a few pointers this week and comments on economic activity.
What will happen in earnings season?
Legal and General Investment Management (LGIM), one of our investment partners, highlight that we are in the middle of pre-announcements ahead of the quarter two earnings season and early indications are promising.
Perhaps more importantly, there have been very few high-profile negative reports. Furthermore, it appears as though there will be far more upward revisions. In May and in the first few weeks of June, more than three quarters of revisions in the US were to the upside, a figure only matched in the immediate aftermath of recessions and after the US corporate tax cut at the end of 2017.
Source: LGIM, Datastream
All of this bodes well for the upcoming earnings season and gives credence to the view that we’ll get another round of significant upgrades to forecasts in the summer, which in turn should help markets.
Fastest pace since 2015!
Sadly, I’m not talking about my running prowess here!
According to FT.com money is pouring into the US stock market at the fastest pace since 2015. All this with a backdrop of near all-time highs and fears over inflation.
Since February, US equity funds have experienced a net $189bn in flows, a “significant push,” said Cameron Brandt, director of research at EPFR, the company that compiled the data. Strong growth expectations, lower interest rates, higher spending from consumers and increasing vaccination rates in the US have renewed investors’ faith in the US economy, which has supported the increase in flows during the first half of 2021. Goldman Sachs expects households and corporations to buy $500bn of US equities by the end of the year.
A significant portion of inflows went to cyclical stocks such as financials, industrials and energy that are seen to benefit from higher economic growth. US small-cap value funds amassed $11bn in inflows in the first five months of 2021, more than any other year in the past decade, according to monthly research run by the Wells Fargo Investment Institute.
Investors are expected to continue pushing into US equity funds in the near term but “we expect the journey to be volatile as investors price the possibility of tapering and interest rate increases by the Fed,” said Ken Johnson, an analyst at Wells Fargo. As the US economy continues to reopen and more people apply for jobs, the next US jobs report on Friday is expected to be stronger, increasing speculation that inflation will climb further.
UK property prices have gone crazy!
Property prices across the UK surged 13.4% on the year, figures from the Nationwide Building Society showed. The increase takes the average UK house price up to £245,432. Bank of England data also showed evidence of a housing boom, as net mortgage lending in May rebounded from £3 billion in April to £6.6 billion.
The first £500,000 of the purchase was free of stamp duty until the end of June, it will now drop to £250,000 before falling again to £125,000 in September.
Nationwide chief economist Robert Gardner said June was unusually weak last year, skewing today’s numbers, but he added: “The market continues to show significant momentum.”
Consumers and England get in the swing
As reported in the Evening Standard, there are more signs of a recovery in the consumer side of the economy as bank figures showed people were beginning to borrow more than they save. As the lockdowns began easing in May, consumers borrowed more than they had squirrelled away for the first time since last August, the last time lockdowns were substantially eased.
As well as being spurred on by greater confidence and more shops and restaurants being open, the behaviour is likely to have been driven by low interest rates. The average interest rate on personal loans was low at 5.6% compared with 7.03% in January last year. Those low rates give little incentive to savers as well. Average rates on instant access accounts were near-zero, at 0.1%, compared with inflation now running above 2%.
Economists have widely talked of a wall of money saved up by the British public which is ready to be spent as the country emerges from lockdown. The latest data suggests this is happening. The amount of money held on deposit in UK bank accounts fell to £7 billion in May, compared with an average of £16.5 billion in the six months to April. This is supporting evidence that the spending boom is in full swing.
It is widely predicted that there will be a mini consumer boom this weekend fuelled by England playing Ukraine in the quarter finals of the Euros. If England do go all the way to the final, then economists do expect the ‘feel good factor’ to have a positive impact on the economy.
That’s all folks!
Have a great weekend and make sure you cheer loudly.
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.