WeekWatch

Stock markets continued to grow last week, as improving inflationary data in the US encouraged continued optimism from investors.

In particular, the US Index, the Dow Jones, broke the 40,000 mark for the first time ever. This Index is sometimes overshadowed by the NASDAQ and S&P 500, which are home to most of the ‘Magnificent 7’ and have been the biggest beneficiaries in the A.I. boom so far. Yet it is worth noting the Dow has grown 50% since it first hit 30,000 back in 2020, and doubled since it first hit 20,000 back in 2017.

As with all US Indexes, the Dow has benefitted from the strong earnings resilience many US companies have displayed in the face of tough global economic conditions. The US is still seemingly on track for the ‘goldilocks’ scenario (where inflation is brought down without a recession), and with an election later this year, it seems likely the US Government will push to continue this run.

With technology associated stocks having done most of the heavy lifting over the past eighteen or so months, it is encouraging that returns have broadened out recently with the likes of utilities and financials all seeing positive momentum over the past month.

Markets were also encouraged by improving CPI inflation data in the US last week. This showed inflation slowed to 3.4% during in April, breaking a run of three consecutive months of above forecast releases. While the lower number will offer some relief, it seems unlikely these numbers alone will be enough to convince the Federal Reserve to bring down interest rates much earlier than previously planned.

Colin Graham, Co-Head of Sustainable Multi Asset Solutions at Robeco, points out that, so far, US consumers have actually managed to take most of the economic pressures in their stride. A big part of this, he notes, is that the US is predominantly a fixed mortgage rate market for households. This has so far allowed consumers to ‘term out’ their debt, locking in 3% rates for 30 years as recently as 3 years ago. On top of this, the median US consumer is still experiencing real wage growth, even in the face of rising prices.

However, Colin adds: “It would be remiss not to mention where the US consumer could be derailed. First, government spending could fall, although that is unlikely as Biden tries to sweeten the voters to back him in the November presidential election. Second, the long and variable lags of monetary policies start to bite and increase the debt servicing burden of more consumers, draining disposable income.”

UK wage growth is also currently outpacing inflation. Last week the Office for National Statistics reported that annual growth in average weekly wages, including bonuses, remained 5.7% in the three months to March. It had been expected to fall slightly. This was despite the overall job market slowing down, with the number of vacancies also falling slightly.

Higher salaries will likely feed into higher inflationary pressures and could pose a tricky puzzle for the Bank of England, as discussions around when it could begin to reduce interest rates continue to swirl.

According to George Curtis, Portfolio Manager at TwentyFour Asset Management, the situation is a bit more straightforward in the EU. There, he notes: “The European Central Bank (ECB) will almost certainly start their rates cutting cycle next month. Supportive inflation data and clear guidance from the governing council has driven market implied probabilities of a June cut to almost 100%, with little in the way to derail that.”

Once central banks begin to cut rates, discussions will likely turn to how in sync they need to be. It seems likely that members of the ECB won’t want to move too far ahead of the US, which may cap how far the two approaches are able to diverge. How and when the various central banks decide to cut interest rates in the coming months will likely have a notable impact on how markets perform in the second half of the year.

Robeco and TwentyFour are fund managers for St. James's Place.

You can’t take it with you when you go, so what’s the best way to pass money and assets on – while paying the least amount of Inheritance Tax?

The power of planning ahead for Inheritance Tax

IHT is the tax paid on your estate when you die. An estate includes money and investments, property, and valuable possessions. Since IHT is charged at up to 40%, it’s vital to plan ahead to avoid making a big dent in the amount of money you’ll eventually pass on.

Not everyone will need to pay IHT, since your estate has to be worth more than £325,000. This tax-free threshold is known as the nil-rate band (NRB). There’s also a main-residence nil-rate band, of £175,000, (RNRB) if you pass your own home on to a direct descendant.

How you can pass your pension on, tax-free

When it comes to legacy planning, many people think about putting assets into trusts, or passing on property. But pensions also play a much more central role than they used to, because as far as IHT is concerned, your pensions generally sit outside your estate.

Making the most of ISAs

You could draw on any tax-efficient ISAs you have. It’s important to remember however, that while ISAs can shelter you from paying Income Tax and Capital Gains Tax (CGT), any money left in your ISAs will be counted as part of your estate again after you die, so they may increase your IHT liability.

Get into a regular gifting habit

You’re allowed to make a total of £3,000 worth of gifts each tax year without them being added to the value of your estate (and you can use the previous year’s allowance, if you haven’t already, provided you use it first).

Similarly, small gifts of up to £250 can be made, free of IHT during a tax year to anybody who hasn’t also benefited from your £3,000 annual exemption.

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.

Trusts are not regulated by the Financial Conduct Authority.

Source: Research conducted for St. James's Place by Opinium, among 4,000 UK adults between 27th February – 8th March 2024. All results are weighted to nationally representative criteria.

"Thank you so much to my team. It’s a big opportunity for my family, for me, for my country. It’s a great time…I am ready for a rematch."

Ukrainian boxer Oleksandr Usyk celebrates becoming the undisputed Heavyweight champion.

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