CIO’s Market Watch – October 2024

Neil Birrell, Premier Miton’s Chief Investment Officer, provides a monthly summary of the key events in financial markets.

For information purposes only. Any views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.

Investing involves risk.

Premier Miton is unable to provide investment, tax or financial planning advice. We recommend that you discuss any investment decisions with a financial adviser. Please refer to the glossary at the end of the document.

Please refer to the glossary at the end of the document.

September – in brief

  • The new Government’s first Budget dominated the headlines domestically.
  • It was bond markets that reacted the most.
  • The US Presidential election is now the main talking point.
The Budget (for growth)

The Budget delivered by the Chancellor at the end of October was probably the most anticipated in living memory. Fiscal policy (government taxation and spending) was at the very centre of the election campaign and has been in the headlines ever since, so the details were eagerly awaited, although many had been pre-announced or leaked.

Nevertheless, the day did provide some surprises. The increases in certain taxes, including those on capital gains and inheritance, were not by as much as many anticipated. However, the overall tax rises and spending cuts totalling £40 billion made it one of the toughest Budgets on record. It was flagged by the Government as a “Budget for growth”, however the economic growth forecasts provided by the Office for Budget Responsibility (OBR), whilst upgrading expectations for this year and next, did not make exciting reading from now out until 2029.

In my view, it is difficult to see how the measures announced do lead to a vibrant economy over the next five years. Investment in the economy, which will happen, is good, but it takes a long time to pay off. Meanwhile, companies are burdened with increased staff costs through National Insurance contributions, which are likely to be passed on to customers, or lower wage increases for staff or lower profits or some combination of those. Add onto that more restrictive employment legislation and you can see how corporate Britain will be under pressure. All these factors have real world impacts.

The tax burden (tax as a share of Gross Domestic Product, or the whole economy) will be rising to the highest level ever in the next few years. Furthermore, Government borrowing is forecast to be £127 billon this tax year and £27 billion in 2028-29, up from previous forecasts of £87 billion and £39 billion respectively. It’s a fairly tough outlook.

That’s probably enough of the economics.

What did the financial markets do?

The UK equity market has lagged other major regions over the last year, indeed largely since the Brexit referendum, as share prices have reflected the economic outlook, and politics has been a weight on our shoulders. However, that has caused the UK to look cheap by historic and international comparison, which meant that the reaction to the Budget was benign.

10 year Gilt Yield

Source: GUKG10 Index (UK Gilts 10 Yr), Bloomberg 29.12.2023 – 04.11.2024. The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.

That wasn’t the case in the lead up to or after the Budget for the gilt market. Gilts are bonds issued by the Government as a way of borrowing money, on which they pay interest.

The yield is the price divided by the interest rate expressed as a percentage, meaning the yield goes up when the price goes down and vice versa. The yield may go up for a number of reasons, one being the amount of supply or issuance of gilts expected. As the Government is planning on borrowing a lot of money, yields rose sharply. The chart above shows the yield of gilts that will be repaid in 10 years’ time, often seen as the bellwether of the gilt market, over the course of this year so far.

Again, this has real world ramifications, gilt yields impact on mortgage rates on offer and the cost of bonds issued by companies as well.

Is it all bad news?

No. That’s never the case.

You could argue all the bad news is known now, which it may be, and therefore reflected in the prices on gilts and equities. That could mean they start improving from here, however, given the uncertainty I think some caution is still appropriate.

The US Presidential election

2024 was a year of elections all around the world, with the most impactful being left until the end.  

The resurgence of Donald Trump and the Republican Party on election day was quite a surprise in the end and provides them with what they will undoubtedly consider to be a powerful mandate. 

It is too early to know exactly what policy measures will be put in place, but on the day after the election, financial markets have decided what the effects are likely to be. US government bonds fell in price (meaning the yield rose) on the back of the view that Trump spending plans will require significant funding, could be inflationary and will lead to interest rates remaining higher for longer as a result. In the same vein, the US dollar was strong against other currencies. The impact would also, in all likelihood, be positive for economic growth in the US, which led to companies whose profitability is related to the domestic economy doing well. This manifested in smaller companies doing well.

In terms of industries, Trump polices are seen to favour fossil fuels, particularly oil, and to be negative for renewable energy, where the share prices of companies globally were under pressure. 

Furthermore, foreign policy will be a key area of focus, particularly as it relates to import tariffs, with technology in the spotlight, semiconductors to the fore and a likely negative impact on Europe and China. 

Writing this on the day after the election clearly means that little information is actually known, but financial markets have made up their minds and it is difficult to disagree with what they are saying, 

However, we now enter a strange period ahead of the 20 January inauguration of President Trump where little will be actually done. However, I have little doubt we will be hearing about plans for the next four years. It’s reasonable to assume there will be volatility in financial markets and, in my view, the moves seen in the few hours afterwards could continue for some time. 


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Risks

Forecasts are not reliable indicators of future returns.

Glossary

Bonds (or fixed income)

Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary, and the investment terms of bonds will also vary.

Gross domestic product (GDP)

A monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries.

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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“US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”).

The information in this site is solely for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investment professional acting for their own account). This information must not be used or relied upon by anyone that may be considered a “retail investor” by the home regulator of the country from which this site is accessed.  

The information contained in this website is directed at persons who are resident in the United Kingdom and complies with appropriate UK legislation and regulations and is not directed at, nor intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted.

The information or opinions contained herein should not be construed as an offer, or solicitation to deal in any investment or fund nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful or in which the person making the offer solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

Neither Premier Miton Investors nor any of its group companies or affiliates accepts any liability for any losses arising directly or indirectly from any information accessed from this website, to the fullest extent permitted by law.

By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

THE UNITED STATES OF AMERICA: The investment products referred to on this website have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any State of the United States of America or the District of Columbia or offered, sold or transferred to US Persons (as defined below). The investment products referred to on this website have not been and will not be registered under the United States Investment Company Act of 1940, as amended. Premier Portfolio Managers Limited has not been and will not be registered under the United States Investment Advisers Act of 1940.

 “US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

 Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”). If those investment products are held by a US Person, a US Tax Resident or a person who does not qualify as a “Non-United States Person” within the meaning of CFTC Rule 4.7, Premier Portfolio Managers Limited shall be entitled to redeem such Shareholder’s entire holdings.