August 2024 Investment Summary

As we begin another summer month, the global economic landscape presents a complex array of opportunities and challenges for investors. From the persistent inflation concerns in major economies to the shifting dynamics in emerging markets, our Chief Investment Officer, Jeff Brummette, cuts through the noise and offers a comprehensive summary of the factors influencing investment strategies and recent market trends.

July was an extraordinary month, and not just because of the correction in the Magnificent Seven stocks. There was an assassination attempt on former President Trump, exposing significant incompetence on the part of the US Secret Service. Additionally, President Biden withdrew from the Presidential race, endorsing Vice President Kamala Harris as the presumptive Democratic nominee.

Three major central banks have held meetings since our last monthly update. The US Federal Reserve (Fed) left interest rates unchanged but hinted they were close to a cut. They will review two labour market reports and two measures of inflation data before their next meeting in September. If inflation falls modestly and the labour market appears a little softer, they are likely to cut rates at that meeting. The Bank of Japan hiked rates by 15 basis points, bringing them to 0.25%, and announced plans to reduce their purchases of Japanese Government bonds. On the 1st of August, the Bank of England (BoE) lowered rates by 25 basis points as inflation had fallen close to their 2% target. Looking ahead, they are concerned that inflation may drift back higher and made no promises on the pace or scale of further rate cuts.

Equity markets were mixed, with Nasdaq negative and the S&P 500 modestly positive, after a rally on the final day of the month. Tech names were the major source of weakness. European markets were down slightly, while the FTSE 100 managed a small gain. Japan and China also declined. The Japanese yen strengthened by over 5% at one point versus the dollar and the pound during the month, which would have offset most of the losses if you held Japanese stocks unhedged. Fixed income markets were positive, benefiting from the European Central Bank (ECB) rate cut in June and the growing expectation of cuts by the Fed and the BoE, and additional cuts by the ECB.

Source: Bloomberg

The Magnificent Seven had a volatile month.

Source: Bloomberg

It is often hard to find a specific reason for a sharp market reversal. Selling can trigger more selling. Questions are mounting about when companies will see a return on all the billions of dollars they are spending to build out AI infrastructure. Former President Trump recently suggested that the US might not defend Tawain, and both Trump and President Biden hinted at the need for more restrictions on tech exports to China. This coincided with ASML’s earnings release, which revealed that a significant portion of their sales were in fact to China. ASML makes the specialised equipment that TSMC uses to make GPUs for Nvidia, leading to sharp declines in these stocks in July. However, this comes after substantial gains this year. This may simply be a correction; trees don’t grow to the sky is the old saying. What’s next? The earnings of the major tech firms will be closely scrutinised for evidence that they may be spending too much on AI, as seen with Alphabet’s recent earnings release.

Volatile Month for the Magnificent Seven

Source: Bloomberg Finance L.P.

Global economic growth remains robust. The US grew at a 2.8% annual rate in the second quarter of this year, while Europe saw a 1.0% increase. The UK’s first–quarter growth was revised higher, with further improvements in May. Inflation remains under control, allowing central banks flexibility to gradually reduce the restrictiveness of monetary policy, creating a favourable environment for risk assets. Should growth slow, central banks are prepared to implement more significant rate cuts faster if necessary. Conversely, if growth remains healthy and inflation stays contained, they will ease policy as well. This scenario should be supportive for both equity and bond markets, although we would not be surprised to see a short-term correction in equity markets given some of the YTD performance, especially from the large-cap technology stocks.

Non-economic factors could also introduce market volatility. The ongoing conflict in Gaza continues despite recent ceasefire negotiations. Additionally, Israel is suspected of having assassinated a high-ranking Hamas official who was visiting Iran and a Hezbollah leader in Beirut, Lebanon, prompting Iran to vow retaliation.

The general election in the UK produced a large victory for the Labour party, who campaigned on a promise of not to raise taxes on “working people”. However, they have since uncovered a “big hole” in the UK’s finances and admit that tax increases will be necessary, presumably to fund the 5.5% pay increases they plan to give public servants. The specific taxes to be increased will be revealed in the Chancellor’s Autumn budget taking place on Wednesday 30 October, but it seems probable that capital gains tax will be targeted.

The US Presidential election has undergone a major shift with President Biden stepping down from the race. Vice President Harris has been seemingly anointed as his successor and is set to be confirmed as the official candidate on August 7th through a virtual meeting of Democratic delegates. She will also announce her Vice President pick before then.

The race that former President Trump was clearly leading has now tightened into a dead heat, if the recent polls are to be believed. There may be an element of excitement over Kamala Harris’s newfound candidacy, but she clearly brings energy and enthusiasm back to the democratic side, although her economic plans are unclear. Trump’s economic proposals are inconsistent; he advocates for lower inflation, tariffs on imports, lower taxes and reduced interest rates. The crucial battleground will be the swing voters and which candidate can win them over. Trump’s choice of JD Vance as his Vice President does not seem to be aiding his cause. Harris’s selection will likely focus on appealing to independents and undecided voters. President Biden’s withdrawal from the race may also help Democratic candidates for the House and Senate, as they were suffering from the negative impact of his unpopularity.

The upcoming 100 days leading up to the election will be noisy.

Hear more from the Oakglen experts

Our investment team continue to provide topical and informative content for you to gain insights from. Our Investment Director, William Lamond, provided an interesting article focussed on Artificial Intelligence (AI) Stocks and our Chief Investment Officer, Jeff Brummette, has put together a timely update on the US election following news that President Joe Biden has bowed out of the race.

Read more:

Reshaping An Industry – The Artificial Intelligence (AI) Revolution

US Election Update – July 2024

You can read other articles from the team on our News & Insights page.

Want to become an Oakglen client?

Get in touch with one of our wealth team via the Contact Us page to hear more about our products and services, and how suitable they are for you and your personal circumstances.

Jeff Brummette

Chief Investment Officer

+44 (0) 20 4583 1129

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.

All articles