In recent weeks many investors and fund managers have been asking themselves “Are we coming to an end to economic uncertainty and stock market volatility?”
There are encouraging signs with the release of the US jobs data numbers. Investors breathed a sigh of relief that the US might be heading for a softer landing, despite the high level of interest rates. The numbers confirmed continued strength of the US economy, with bumper payroll numbers and indications that wage growth is moderating.
The markets were given a further boost on 10th of October, with the release of dovish comments from the US Federal Reserve officials suggesting an end to rate hikes.
All eyes will now be on the inflation data released this month. There will off course be continued monitoring of the recent uncertainty around the middle east, and geopolitical risks involved, so could see periods of risk aversion.
On the 10th October, London shares traded higher, with the FTSE100 closing 7628.21+135, FTSE250 17,967.67 +395 & FTSE350 4196.79+76.69 taking cue from the positive session on wall street. This helped to offset concerns over the conflict in the Middle East
For a few years, we’ve lived in a world of low interest rates-something which has benefitted technology shares rather than the more value orientated FTSE100.
In February this year the blue-chip index hit 8,000, which led to the question of whether the index was beginning to look expensive-in fact, it remains firmly unloved. When this changes it can be argued we can expect further gains. Remember the index is the most mature dividend-paying market in the world.
There is currently a consensus that the UK is almost too cheap to ignore. Research from Franklin Templeton shows UK equities haven’t been cheaper on a relative basis since the global financial crisis. The UK market also looks cheap on an historical basis, with a price-to-earnings (P/E) ratio currently around 11x. Again, the last time markets were so cheap was during the global financial crisis and, before that, way back in the early 90s.
Of course, there are other factors worth considering. For example, the UK consumer is still sitting on a fair bit of cash, having seen the household savings ratio surge, courtesy of the pandemic (household saving rose from 5.3% in 2019-2020 to 16.9% in 2020-21). While we’ve seen pension funds go from owning 50% of the UK market to less than 2% optimists would also say this is a nadir, with things likely to get better from here.
If you would like to discuss your current investments or future plans we would be happy to schedule a call – Contact details for the CFM team are here and my contact details are:
T: 0203 6970561.
Stephen Lovelock, October 2023