WHAT DOES THIS MEAN FOR YOUR INVESTMENTS?
Inflation is slowing, global economic growth is picking up and central banks are nearing the end of their interest rate hiking cycles. With this in mind, we’ve made some changes to our portfolios.
We increased our investment in global equities – US economic growth remains robust, with falling inflation, a resilient jobs market and strong consumer spending all playing their part. Because of the global influence of the US, we have increased our exposure to global equities slightly, favouring active managers well positioned to pick companies that can navigate the current environment.
We bought gold – With risks remaining in markets, including record fiscal deficits in western economies, we’ve added greater diversification to our portfolios and funds by buying gold. This so-called ‘safe-haven asset’ could perform well in a range of different economic situations.
We adjusted our government bond investments – We recently bought long-dated US government bonds. We believe the run of interest rate rises is coming to an end, which could mean a more positive outlook for bonds.
THIS MONTH’S SPOTLIGHT: EARNINGS SEASON KICKS OFF
US earnings season began in mid-October. Much of the news so far has been positive, but due to perhaps excessively high expectations, market reaction has been muted.
For example, after an impressive first half of the year, some of the leading US technology firms – the so-called ‘Magnificent Seven’ of Apple, Microsoft, Nvidia, Meta, Amazon, Alphabet and Tesla – have felt increasing pressure from investors to deliver strong earnings. Last month saw big falls in Tesla and Alphabet following results which disappointed investors.
Howard Sparks, US Equity Research Analyst at Coutts, explains: “We’ve seen negative market reaction to generally positive news on company earnings. Expectations were high going into earnings season, which meant any signs of weakness were severely punished.
“Additionally, the continued resilience of the US economy means there’s uncertainty around when we’ll see peak rates and for how long they’ll need to remain high. And this has impacted investor appetite for equities.”
This reaction reemphasises the nervousness from investors and how sensitive markets can be during these times. But it’s worth highlighting that this negative reaction and related weak market performance isn’t uncommon and we see current levels as potentially being attractive given our expectation for things to improve for the rest of the year.
Coutts’ clients can find out more about what’s happening in the investment markets and how it impacts their investments by speaking to their private banker.
Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.