SPW MarketWatch: August 2024
- Investment Specialists, Schroders Personal Wealth
- 20 September 2024
- 5 mins reading time
Source: FactSet, 18 September 2024. Figures are monthly price returns in local currencies for August 2024.
Equity markets seesaw
Global equities (shares) underwent sharp declines at the start of August, after news that the US labour market had added just 114,000 new jobs in July. This was well below an expected figure of 175,000 new positions and helped drive the US unemployment rate up to 4.3 percent. It also suggested the US economy could be more likely to undergo a slowdown (1).
While equities fell, US government bond prices rose as investors thought the US central bank, the Federal Reserve, would be more likely to reduce interest rates to support the economy. Bond prices often rise when interest rates are expected to fall.
But relatively strong US retail sales figures and labour market data, released on 15 August, drove US equities back up again. Meanwhile, US government bond prices fell back (2).
We retain a positive view of equities and of US equities in particular, as we are not currently expecting a US recession and anticipate positive growth in US company earnings. But we have moved to a cautious stance on government bonds.
Starmer warns of ‘painful’ budget
On 27 August prime minister Sir Keir Starmer warned the 30 October budget is ‘going to be painful’, adding ‘those with the broadest shoulders should bear the heavier burden’.
Chancellor Rachel Reeves has already ruled out increasing the rates of income tax, VAT and national insurance. And the Prime Minister’s office says the 25 per cent rate of corporation tax won’t increase (3).
Where else could tax increases come from? There has been some speculation on potential areas for change, possible avenues of taxation have been rife. Options like adjusting income tax thresholds, raising capital gains tax rates, and revising inheritance tax rules have all been suggested. On a larger scale, the government could consider amending fiscal rules which limit the amount of debt, which could create more flexibility for additional spending.
If you are concerned about the potential implications of possible tax changes, then you may want to speak with a financial adviser, who could help you understand and navigate any changes announced.
Sources:
(1) Financial Times (www.ft.com), ‘US economy cools more than expected in July with 114,000 jobs added’, 2 August 2024.
(2) Financial Times (www.ft.com), ‘Investors pile back into equities amid “full recovery” in market confidence’, 19 August 2024.
(3) Financial Times (www.ft.com), ‘Wealthy households and businesses brace for tax rises after Starmer speech’, 27 August 2024.
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