Stock Take

The phrase ‘data is the new oil’ has been common for much of the twentieth century. Technology companies have turned into trillion-dollar businesses, built around the collection and analysis of data, while green energy should mean the days of oil are limited.

However, recent events have proven claims around the demise of oil have been greatly exaggerated.

Russia’s invasion of Ukraine last year triggered a jump in oil prices that was one of the main causes of global inflation . Gradually prices reduced, however in recent weeks they have started to increase again.

Last week oil continued its climb, with Brent crude breaking $97 a barrel midweek, before falling back to $95.41 at the end of the week. This was still up 2.2% on the week before though.

These high prices could lead to additional inflationary pressures, and reduce the chances that central banks will cut interest rates in the near future.

This is a real fear for markets. Mark Dowding, Chief Investment Officer at Bluebay, said it would be ‘unforgivable’ for the Federal Reserve to turn too dovish too soon. He noted: “If inflation was to re-accelerate then this would put the Fed in a very difficult position and it may need to endorse further aggressive tightening in order to restore price stability, with this resulting in a more severe recession were this to be the case.

“Looked at in this context, and with the economy remaining robust, it is easy to understand why the Fed messaging continues to highlight the prospect of one more hike in the coming quarter, with little prospect of lower rates until well into the second half of 2024.”

While the increase in oil helped lift energy company stocks, outside of that there were few winners in the US, as the S&P 500 slipped for a fourth consecutive week.

Although the NASDAQ did manage a paltry 0.1% growth, this was not enough to prevent September being the worst month of 2023 for both indexes.

Equities were not helped by increasing fears of a US Government shutdown, which grew over the course of the week.

The Republicans currently have an extremely slim majority in the House of Representatives, and House leader Kevin McCarthy struggled to find a funding agreement between the various wings of his party.

Ultimately Congress was able to pass a temporary spending bill over the weekend, albeit one that only lasts for 45 days. This could cause further pressure on US markets later in the year.

With European economies so intertwined with the US, unsurprisingly their respective indexes also felt the impact of the potential Government shut down. Overall, The MSCI Europe ex UK index shed 0.7% whilst the FTSE100 declined by 1.0%.

It was not all bad news on the continent, however. In the UK, the Office for National Statistics revised up its figures for Q1 GDP. Previously, it had estimated UK GDP had grown 0.1%. Instead, it now believes the UK economy grew by 0.3%.

ONS chief economist Grant Fitzner said: “Our new estimates indicate a stronger performance for professional and scientific businesses due to improved data sources. Meanwhile, healthcare grew less because of new near real-time information showing the cost of delivering services.”

The new growth means that the UK economy grew 1.8% between the end of 2019 and the Q2 of 2023, putting it ahead of Germany and France (although some way behind the 6.1% recorded in the US). The news will be particularly welcome, as economic sentiment around the UK has generally been low in recent years.

Turning to Europe, last week the European Central Bank (ECB) released its inflation figures for September.

Thankfully they continued to show inflation falling. Year-on-year headline inflation in September was 4.3%, compared to 5.2% in August. This was also lower than the 4.5% markets were expecting.

Claus Vistesen, Chief Eurozone Economist at Pantheon Macroeconomics, said this was likely the beginning of an accelerated decline in Eurozone inflation, especially in core prices. Claus noted: “It is still early days, but if this rate of disinflation in core goods is sustained, we see scope for significant downgrades in Eurozone core inflation forecasts next year.

“Our preliminary updated forecasts points to core inflation next year at 2.2%, 0.3% lower than previous, reflecting lower than anticipated non-energy goods inflation. We could be wrong. Monthly pricing in non-energy goods is notoriously volatile, but at this point the ECB’s 2024 forecast for core inflation at 2.9% is a sitting duck.”

Wealth Check

There’s more choice and flexibility than ever before when it comes to accessing your retirement savings. but deciding which option is best for you can be overwhelming.

In the UK, you can withdraw money from your pension pot, but you must have reached a certain age to do so – this is usually 55 years (set to rise to 57 in 2028). You may be able to withdraw your pension earlier if you’re disabled or seriously unwell, but the rules depend on your pension scheme.

Beware of pension scams as you’re nearing pension age. Criminals are more likely to approach you to try and convince you to withdraw or invest. They may falsely claim you can access your pension before you’re 55. If you’re ever unsure, talk to your adviser.

Another option might be an annuity. This is a product you can buy with your pension funds, which converts your pension pot into an annual pension, giving you a guaranteed income for life.

Although the popularity of annuities has declined in recent years, they should not be dismissed as an option – especially as part of a diversified approach to retirement planning.

Rates tend to be better the older you are, and it’s always worth looking for an enhanced annuity to improve your rate further.

You could also leave your pensions as they are. Your pension investment will continue to be subject to market volatility, and there are no guarantees, but you may be able to grow your pension funds further.

This means when you are ready, your tax-free cash lump sum, and pensions could be worth more. But if you’re unsure, an adviser can discuss your options with you and help you plan ahead.

It can be overwhelming with so much choice on offer, but you don’t have to decide alone. A financial adviser can help you understand the main considerations when assessing your retirement benefits and discuss how to work out what you will need.

They can also help you understand any tax implications and put a plan in place that’s bespoke to you.

What works for someone else may not be the right thing for you. Speak to an adviser who can help find the best option to suit your needs and achieve the best outcome for you and your family.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

In The Picture

Although September was a tough month for the S&P 500, research done by Bespoke Investment Group has highlighted how thinking long-term can smooth out shorter-term market volatility. Time pays in the stock market.

Past performance is not indicative of future performance.

Please note it is not possible to invest directly into the S&P 500 and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

Source: Bespoke Investment Group, July 2023

S&P 500 Past performance 

PeriodSep 2022 – Sep 2023Sep 2021 – Sep 2022Sep 2020 – Sep 2021Sep 2019 – Sep 2020Sep 2018 – Sep 2019
S&P 50021%15.7%29.4%14.5%3.6%

The Last Word

“We need to find a formula that doesn’t mean that we’re on a vicious circle of ever-rising taxes.”

UK Chancellor Jeremy Hunt says the country needs to find a way of improving services without increasing taxes.

Bluebay are a fund manager for St James’s Place

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2023; all rights reserved

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

SJP Approved 02/10/2023

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The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

Members of the St. James’s Place Partnership in Hong Kong represent St. James’s Place (Hong Kong) Limited, which is an insurance broker company licensed with the Insurance Authority (Licence No. FB1075), a licensed corporation with the Securities and Futures Commission (CE No. AAV439) and registered as an MPF Intermediary (Registration No. IC000852).