After weeks of increasing political pressure, last week Chancellor Rishi Sunak announced a £15 billion support package to help the population cope with rising fuel costs.
People are struggling with mounting gas and electricity bills, which are likely rise again in October, after the annual price cap is expected to rise by a further £800. To help with these cost increases, Sunak announced an energy grant of £400 for all UK households, with additional grants for low-income households, those with means-tested disability benefits, and pensioners.
The move will be partly funded by a windfall tax on the profits made by oil and gas companies, however much of it will come from additional borrowing.
David Page, Head of Macroeconomic Research at AXA Investment Managers, said the package was larger and more targeted than expected, and would help act as a buffer against rising energy costs.
However, he added: “Assuming that today’s package will be largely debt financed, this amounts to additional fiscal stimulus, something that is likely to maintain growth in excess of trend in Q3 this year. As such, we think that this will lead the Bank of England to tighten monetary policy further to ensure that inflation falls back sufficiently over the coming years.”
Paul Dales, Chief UK Economist at Capital Economics, suggested four key consequences as a result of the package:
Turning to the US, the S&P 500 rose by more than 6.5% last week, buoyed by solid retail sales data. Purchases rose by 0.9% during April whilst the March data was also revised higher. With wage growth remaining below the rate of inflation, the increase in activity has been led by households spending savings they accumulated through the pandemic. Whilst that clearly isn’t sustainable over the long term, the recent strength in consumer spending points towards US economic growth of more than 3.0% in the quarter, reversing Q1’s contraction.
Eoin Walsh, Partner, Portfolio Management at TwentyFourAM, said this increased spending matched recent comments from US banks. He noted: “We think that the large US banks probably have the best insight into the health of the US consumer, as they service all cohorts of the population and all sectors. Therefore, comments from Bank of America (BoA) CEO Brian Moynihan stating that BoA’s customers are yet to spend significant stimulus money, possess higher deposits than a year ago and are spending more, support the view that the US economy remains relatively healthy.
“These comments followed the JP Morgan CEO, Jamie Dimon, saying that the US economy remained strong and “credit looks really good”. The sources of these comments are well-regarded and mean investors have reason to reconsider the growing view that the US economy was heading for a hard landing.”
In contrast, Developing markets have struggled of late for several reasons. One of these has been the ongoing weakness of Chinese equities. Over the last year, these have been hit by tightening regulations in some sectors, issues with property developers (most famously Evergrande), and most recently due to resurgent COVID-19 worries. The latter of these points has seen Shanghai placed under a strict lockdown for some time now.
However, there are a number of voices suggesting pessimism around China could be peaking. Tom Wilson, Head of Emerging Market Equities at Schroders, admits: “Unlike many other countries, policy stimulus is being applied and if the zero-COVID-19 policy leads to fewer restrictions, the economy could rebound from a low base. Emerging market investors are underweight China, according to industry surveys, and the equity market has cheapened.”
A bear market is a period when markets fall. It’s also an inescapable part of investing in stocks and shares, and the greatest challenge that investors will face. This isn’t because of the possible losses, but the poor choices we are liable to make when markets look ‘bearish’.
The opposite of a bear market is a bull market, a period when markets rise. The decision-making dynamic differs entirely depending on which type of market you’re in. During a bear market, smart, long-term decisions can often look foolish in the short term. During a bull market, foolish long-term decisions can often look smart in the short-term.
With the help of our Director of Liquid Markets, Joseph Wiggins, we’ve compiled a list of reasons to stay true to your long-term plans, even in bear markets.
Bear markets are an ingrained aspect of investing in stocks and shares. The long-term return from owning stocks and shares would be significantly lower if it were not for bear markets. We know that they’ll happen, we just can’t be sure of when or why. It’s just important to stick to your long-term plans when bear markets do occur.
As share prices fall, hindsight bias will run amok. It’ll seem obvious that a bear market was coming – the warning signs were everywhere! However, let’s not forget all the other periods where red flags were abundant and yet a bear market didn’t occur.
The temptation to react to economic developments to maximise your returns or minimise your losses can be irresistible during a bear market. Bear markets cause panic. We stop worrying about the value of our portfolio in thirty years and start thinking about the next thirty minutes. Take a step back and stay true to the principles you had in mind when you invested in the first place.
In the short term, bear markets may feel like unfortunate financial losses. However, what they really are is a repricing of the long-term cash flows generated by a business or the market. Remember that the underlying value of those businesses doesn’t change anywhere near as much as short-term market pricing does.
During a bear market, it is hard to see anything ahead but unremitting negativity. Rational thought will be overcome by our emotions. This internal struggle is why it’s important to set out on your investing journey with a strong set of principles.
An important principle is that when we invest, we have a clear long-term goal and don’t react to short-term uncertainties. With this kind of mindset, a bear market should be a weatherable storm.
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.
I can’t protect everyone from all the global challenges we face, [but] the policies announced today will put billions of pounds back into the pockets of hard-working families.
UK Chancellor Rishi Sunak announces his energy support package in Parliament last week.
AXA Investment Managers, Schroders, and TwentyFourAM 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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