June 2024 Investment Summary

As we motor towards the end of Quarter 2 and the UK General Election, our June 2024 Investment Summary reflects upon the month of May and the upcoming weeks in June. With geopolitics and central banks in focus, our Chief Investment Officer Jeff Brummette takes a closer look at what has been occurring in financial markets.

The losses global equity markets experienced in April were quickly reversed in May, once again led by the US markets and big tech. The S&P 500 advanced nearly 5%, closing over 5,300, whilst the Nasdaq Composite crossed 17,000 for the first time.

Source: Bloomberg

Slightly weaker economic data in the US, particularly in the labour market, along with continued declines in inflation, re-kindled hopes for interest rate cuts by the Bank of England (BoE), European Central Bank (europa.eu) (ECB), and the Federal Reserve Bank (Fed). This anticipation led to an intra-month decline in interest rates, which, coupled with generally upbeat earnings reports, spurred a sharp equity rally.

Inflation is now close to the 2% targets of the BoE and the ECB. On June 6th, the ECB lowered rates 25 basis points stating “it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.”

However, they also raised their forecasts for inflation over the next two years, suggesting there is no predetermined plan for additional cuts. This move by the ECB could potentially serve as a template for the Fed and BoE to follow.

Source: Bloomberg

Six of the Magnificent Seven were positive for May, with Nvidia crossing the $1,000 mark for the first time as it posted a 26% gain, following another quarter of record earnings. This impressive performance helped propel the Nasdaq to rise nearly 7% for the month.

Source: Bloomberg

There are no immediate risks on the horizon that could halt the global equity rally. Inflation has cooled, labour markets remain robust and economic growth is positive. Central banks are inclined to ease monetary policy if inflation continues to decline. Additionally, they are also likely to ease if growth falters, effectively reinstating the “Fed put”.

In the post-Great Financial Crisis period, whenever US equity markets experienced significant declines, the Fed would intervene with new rounds of quantitative easing (QE), encouraging markets to reverse stock market declines. This behaviour came to be known as the “Fed put”. Currently, market participants believe this safety net is back, as Chairman Powell has indicated that the Fed would ease policy in response to a sharp deterioration of the labour market. We believe this accurately reflects current Fed policy and is supportive of the markets.

That doesn’t mean equities can’t fall in price in response to a slowing of economic activity. They certainly can, and rate cuts wouldn’t necessarily halt a sell off and immediately revive the economy. However, the Fed’s policy bias is asymmetric: they will cut if needed, with the worst case being that they keep rates on hold. The threshold for them to resume tightening policy is high; inflation would have to start climbing again in a manner that the Fed feared could become permanent.

The next Federal Open Market Committee is scheduled for 11th and 12th June, and they receive new inflation data on the morning of their meeting. While this data might generate significant market reactions, it is very unlikely that the Fed would make policy decisions based on a single data point. Instead, the market’s attention will shift to second-quarter earnings, which begin in early July and will become the next focal point.

The US elections may also begin to take a more prominent role in influencing markets. There will be a debate on June 27th between the two presidential candidates. Neither candidate is particularly popular; in fact, political pundits are referring to the undecided voters (approximately 20% of the electorate) as the “double haters” because they intensely dislike both candidates. It is these voters who will decide the election. The early polling suggests the recent conviction of Donald Trump has not significantly altered voters’ opinion of him. While the “double haters” might dislike him even more, this sentiment is not yet definitively clear.

Regardless of who wins, it is likely to be a divided government, with the Democrats retaking the House of Representatives and the Republicans securing the Senate. This would prevent any radical agenda being implemented by either party. However, it also raises concerns about legislative gridlock, which is worrisome given the conflicts in Ukraine and the Middle East, as well as the deteriorating fiscal situation in the US. Both the Medicaid and Social Security benefits programs are projected to run out of funds by the end of the next decade, while interest service costs on the national debt are becoming a key expenditure item in the US government’s budget. At some point this will become an issue, there is just no telling when.

Closer to home, the UK holds its General Election on July 4th. The outcome almost certain, with the main question being the size of the Labour majority. Labour isn’t campaigning on a clear economic agenda, so it’s unclear how markets will respond to their anticipated victory. However, there is some hope that they may achieve better relations with the EU, which be beneficial to the UK economy. We will have to wait and see.

At a portfolio level, we continue to hold a modest level of duration in fixed income, although stand prepared to adjust this in the event of more aggressive rates than markets are currently pricing. In equities, we have selective exposure to some of the mega-cap technology stocks as well as the commodities sector.

As we have been suggesting all year, while interest rate cuts would be a positive, they are not essential for the upward trajectory of equity markets to persist. Solid economic growth, coupled with healthy business and consumer spending, can continue to underpin equities. A well-diversified portfolio comprising of quality stocks, along with a moderate allocation to fixed income, will enable investors to navigate our new world of higher inflation and interest rates. This evolving landscape is not an anomaly; rather, it signifies a return to a more typical market environment.

Hear more from the Oakglen experts

Our investment team continue to provide topical and informative content for you to digest. Our Managing Director Dominic Tayler covered the UK General Election and the economic implications, and our Chief Investment Officer Jeff Brummette covered China’s plans to sell off special central government bonds in an attempt to stimulate the economy.

Read more:

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