Navigating the current investment landscape: Insights and outlook

Financial markets are consistently influenced by a myriad of factors, from economic policies and technological advancements to global events and investor sentiment.

Understanding and anticipating these forces is crucial for making informed investment decisions, meaning financial experts must stay vigilant and adjust their strategies with the aim of delivering for their clients.

Schroders Personal Wealth’s (SPW’s) recent webinar, hosted by SPW Chief Client Officer Ben Waterhouse, brought together investment experts to explore the factors currently influencing markets and their thoughts on how they may impact future performance.

Embracing equity amid economic shifts

Equities – commonly known as stocks and shares – have broadly performed well in 2024. These assets are influenced by factors including company profit margins and consumer spending and, with inflation stabilising and central banks loosening their monetary policies, their outlook for continued growth appears positive.

“Today, we like equities. Growth looks okay, inflation is moderating and central banks are easing policies. This environment should be quite good for equities,” said Philip Chandler, Head of UK Multi-Asset at Schroders.

“I want to make sure our clients benefit from that by having a higher weight of equities in their portfolios.”

But while equities look buoyant, performance hasn’t been the same for bonds. This is to be expected, as these investments in government and corporate debt are generally taken to be lower-risk opportunities for more conservative investors.

Bonds saw a highly volatile year in 2022, but have since stabilised to a period of relative calm.

Alan Goodman, SPW’s Chief Investment Officer, noted: "Our clients who are more cautious tend to be invested more in bonds. For these clients, it has been a pretty flat year."

Future economic and political risks

With the recent performance of equity and bond markets in mind, investors are keen to understand future risks.

Joseph Allen, Senior Investment Specialist at SPW, called this phenomenon the “rollercoaster of investor emotions”. He said: “As markets rise investors often feel more optimistic about the future and as markets become more volatile clients may feel nervous about their investments”, meaning investors like to keep a close eye on factors that lie ahead.

Chandler said the economic outlook was “broadly reasonable”, but pointed to two major risks that may take a toll on markets.

The first is the concentrated performance of equity markets, which have been dominated in recent months by US stocks and, in particular, the ‘Magnificent Seven’ – a group of high-performing tech companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla) which often show impressive growth.

These seven companies have returned more than 35% year-to-date, contributing significantly to the 15% returned by the S&P 500 more broadly.

Chandler explained: “This small cohort of big tech stocks have done phenomenally well riding the artificial intelligence (AI) wave.

“But it’s a double-edged sword. It's been great for returns so far, but we need to be cognisant of the risks that come with a narrow group of companies driving the market.”

The second risk highlighted was the US election in November, which became more tumultuous this month after sitting president Joe Biden stepped down as a candidate and the attempted assassination of his rival, Donald Trump.

Many polls have predicted success for Trump, but, as the saying goes, the only poll that matters is the exit poll. Additionally, as noted by Chandler, the presidency isn’t the only factor at play in US politics.

He said: “It’s not yet clear what all of Trump’s policies will be. And critically, it doesn’t just matter whether Trump is elected. It also matters what happens in Congress – which party wins in the House of Representatives and the Senate.”

Beyond the US: The global outlook

While the US has dominated markets in recent months, it is not the only region where opportunities can be found.

For instance, as noted by Goodman, Europe is predicted to have lower growth compared to the US and China. But crucially, the picture will not be uniform within any of these markets.

“Does low growth in Europe mean the same thing for the German automotive sector? What does it mean for French mid-market companies?” Goodman asked.

“It’s our job to look for opportunities both on a sectoral and a regional basis to make sure we have the right mix of exposures and a good understanding of the risks.”

Many of these opportunities will come down to innovation, or how well a company is positioned to capitalise on emerging trends.

Allen said: “Over the last 200 years or so, there have been various waves of innovation, whether that’s been the impact of the industrial revolution or more recently how the internet has changed society.

“What is interesting is that these waves tend to speed up over time. Looking ahead, we believe we may be on the crest of a new wave involving AI, clean energy and advances in medical innovation. These will be global trends and it will be an exciting time for innovation for global investors.”

However, as always at SPW, our investment professionals aren’t interested in simply constructing a portfolio that suits the times – they're also interested in constructing a portfolio that suits you.

“For our clients, the fundamentals of how we build and manage investments on their behalf has not changed,” Allen said.

“The starting point is to understand our clients’ needs and objectives. This will help us determine the correct mix of assets to hold in the portfolio to meet that objective, and the correct way to manage risk.”