Market Update – July 2024
July has witnessed some volatility in developed financial markets, following many months of record highs in 2024. However, markets remain largely positive and unaffected by a stream of significant political events in the Western world. Central banks continue to hold interest rates steady. Mixed results have emerged in Asia, with uncertainty handing over China.
Labour’s Rise to Power
Keir Starmer’s Labour Party emerged as the clear winner of the 4 July 2024 general election, claiming 411 seats. Rachel Reeves, the new Chancellor, quickly stated that “Things are going to be tough” as the new government attended to the public finances.
This came to a head on 29 July when Chancellor Reeves gave a speech to Parliament, identifying a £21.9bn government overspend this year. She then announced a series of cuts to public spending, including:
- Scrapping Winter Fuel Payments for 10m pensioners (e.g. those not on benefits).
- Ditching the Social Care Cap, planned for April 2025.
- Rowing back spending on non-essential items, such as consultants.
Reeves also confirmed a 22% pay rise for junior doctors following a 5.5% pay rise already announced for teachers and NHS nurses.
So far, none of this (nor Labour’s 5 July victory) has unsettled financial markets. However, speculation is rife that further measures – perhaps tax rises – could be announced later in the year during the Autumn Statement.
The Inflation Landscape
Investors continue to watch inflation figures closely since they will play a key role in determining whether central banks, like the Bank of England (BoE), lower interest rates.
The CPI (Consumer Price Index) reading for June was identical to that in May 2024, standing at the BoE target of 2%. The Monetary Policy Committee (MPC) has recently lowered interest rates to 5% in early August, but further cuts may not be imminent.
There is some concern that the Chancellor’s announcements of public sector pay rises could drive up inflation. If this transpires, then there could be further delays to cuts in interest rates – i.e. potentially bad news for borrowers but good news for savers.
The UK Market
The FTSE 100 has enjoyed quite a strong month, with the index up 1.54% between 1 – 29 July.
As August approaches, many blue chips face a “crunch week” for earnings (e.g. Barclays and BP). Vodafone and NatWest have shown strong performance, as has Tesco with the continuation of its £1 billion share buyback programme.
Indeed, the UK is looking relatively attractive to many investors at the moment. The arrival of such a strong Labour majority in the House of Commons could restore the UK’s reputation as a “safe haven” for investors, potentially adding a tailwind to the pound, shares and investments.
However, there are still outstanding issues with the UK market which need addressing. FTSE 100 companies continue to focus heavily on dividends over growth, and many UK companies continue to leave for the US.
There are encouraging signs that IPO activity is returning (the successful float of low-cost computer builder, Raspberry Pi). However, addressing these issues should be a top priority both for the new Labour government and the City.
The Global Outlook
The big news in the USA in July was the attempted assassination of Donald Trump. A few weeks later, President Biden announced his decision to stand down as the Democratic Party nominee for the 2024 presidential election – paving the way for Vice President Kamala Harris.
The US market has also experienced a fairly volatile month. Whilst the S&P 500 stood largely unchanged from the start of July, the tech-heavy NASDAQ retreated by 3.6% on 24 July as poor results were announced by Tesla and Google.
Investors are on high alert as August begins, with key earnings set to be announced, including those of Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta (META).
Some important US equities are being heavily “supercharged” by widespread enthusiasm for artificial intelligence (AI). With some US stocks continuing to trade at high premiums relative to valuations, some analysts are concerned about a possible “AI bubble” that could burst.
Only time will tell if this is the case. However, this is a good reminder to stay diversified and to stay true to other time-honoured principles of sound investing.
European shares have struggled to impress in July, especially with political turmoil weighing heavily on markets – such as the French elections. The Euro Stoxx 600 was largely unchanged by the end of the month, and the Euro Euro Stoxx 50 was down 2.32%.
Mixed results have emerged from Asia. The Nikkei 225 index in Japan retreated in July, even falling by 5.98% on 26 July. However, the Japanese yen has regained some ground against the US dollar following a heavy depreciation in 2024.
China is still struggling to fix the issues with its property market and demographics. Investors have also fretted over the decision of its central bank to cut interest rates in July, leading to speculation that Chinese authorities are concerned about the economy.
