Stock Take

US stocks enjoyed a lift towards the end of last week, having fallen the day before on news that President Biden’s government will target wealthy Americans with tax increases.

On Thursday last week, President Biden’s team leaked details of their proposed tax increases. Under the plans that emerged, the top marginal income tax rate is proposed to rise to 39.6% from 37%. What generated more headlines, though, was the proposal to also bring the federal tax rate for capital gains to 39.6% – almost double what it is at present. The higher rate of capital gains tax is set to affect people whose annual income is more than $1 million.

US stocks lowered on the news, with the three largest US stock indices falling by around 0.9%. Even though Biden’s desire to increase taxes was made clear in his campaign, it caused some jitters in markets as investors assessed what it meant for their own positions.

However, on Friday, US equities rallied on positive news about the country’s economic recovery. Data on jobs and activity gave the positive signals that the market seemed to be looking for, and the result was US stocks ending the week only slightly lower than they opened it. Weekly new unemployment claims were at their lowest level since the start of the pandemic, while manufacturing and services numbers also revealed stronger activity.

“We continue to believe that data on US growth and inflation have still got room to surprise to the upside, even given bullish consensus projections,” wrote Mark Dowding of BlueBay Asset Management, co-manager of the St. James’s Place Strategic Income fund.

Similarly, in the UK, the data suggest that the recent loosening of the national lockdown is already having a positive economic effect. On 12 April, the government allowed non-essential retailers and outdoor hospitality venues to resume trading. Since then, footfall in retail businesses has increased dramatically: in the week leading up to 12 April, it was 65% lower than it was two years ago, but last week it was just 25% lower, according to Capital Economics.

“The rises support our view that monthly GDP will go from being 7.8% below its February 2020 peak this February, to about 3% below by the time most sectors are fully open in July, and back to the February 2020 level before the end of the year,” wrote Paul Dales, Chief UK Economist at Capital Economics.

Vaccinations: good and bad

Last week also brought news about one type of vaccination. Since last year, the world has been busy focusing on those that deal with the most urgent illness, but last week a rare piece of good news emerged on another subject. The University of Oxford revealed that early trials of a new malaria vaccine show it is 77% effective against the disease. Malaria kills approximately 400,000 a year, most of whom are children in sub-Saharan Africa.

The news was less positive on the COVID-19 front. Although some countries are racing ahead with successful vaccination programmes, it’s still a mixed picture globally. Last week, India reported the world’s largest ever one-day jump in new daily COVID-19 infections; making the country of 1.3 billion the new frontline in the world’s struggle against the virus. Japan declared a state of emergency in Tokyo, Osaka, and two other major prefectures in response to rising case numbers. Similarly, Halifax, Nova Scotia began a new one-month lockdown.

Investors are keenly watching COVID-19 levels due to their potential to undermine the market recovery that has taken place since successful vaccine programmes were announced last year. The speed with which rising case numbers shut down regional economies should remind us to stay cautious, and to expect further ups and downs in markets as they respond to the good and bad news about COVID-19.

Life is beginning to resemble normality again in many countries around the world, but the interconnected nature of the world today means that bad news about COVID-19 affects markets everywhere, wrote Kristina Hooper, Chief Global Market Strategist at Invesco: “What happens in Vegas, stays in Vegas… But what happens in Sao Paolo, New Delhi, Paris, Amsterdam, or Los Angeles doesn’t stay there… So, we need to care about vaccinations everywhere.”

Wealth Check

When we think about responsible investing, climate change and the environment can be the first things that spring to mind. However, new research shows that investors are just as interested in the social practices of the companies they invest in.

According to new research, 83% of investors expect companies to pay their employees the National Living Wage, while one in three would divest from the company if they didn’t.1

The Living Wage Foundation encourages companies to pay their employees enough to meet their everyday needs and the basic costs of living, which is more than the National Minimum Wage.

The study also shows that investors are most concerned about businesses’ harmful social practices, followed by tax avoidance, and then poor climate risk management.

It’s widely accepted that investing your pension in a sustainable and responsible manner is one of the most impactful ways you can help to address climate change and enact positive social change.

After all, it’s often the most amount of money that any of us will invest. Your pension is a powerful tool for your own financial security – and it can also be used to advocate for the world you want to retire into, making it a force for good.

“Our clients, and society at large, are increasingly making choices based upon their own values, reflecting their concern for others and for the environment,” said Petra Lee, Responsible Investment Consultant at St. James’s Place. “Investments and pensions are another way that money can reflect the changes we want in our society.”

“Social issues are incredibly varied, but come down to treating others fairly, whether that be employees, suppliers, communities or clients,” she added.

If you’d like to learn more about where your pension is invested, speak with your St. James’s Place Partner.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

1 Source: PensionBee, March 2021; total question respondents 1,504

In The Picture

Investors in equity markets will have noticed that, at different points in the pandemic, the values of different types of companies have changed in response to news about the future. In this short animation, we explain how to think about different investing styles, and why it’s important to maintain a balance in your portfolio to lower risk and smooth out returns.

The Last Word

“These new results support our high expectations for the potential of this vaccine, which we believe is the first to reach the WHO’s goal of a vaccine for malaria with at least 75% efficacy.”

Adrian Hill and Lakshmi Mittal, co-authors of a paper on the new malaria vaccine.

BlueBay and Invesco are fund managers 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.

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