I hope this finds you well and that you enjoyed the Christmas holidays. Happy New Year to you and yours from the Wetherall’s team. We hope 2024 is a great one for you and your family.
The first week of reacclimatising to normal life after the Christmas break is always a bit painful. Sadly, it’s no longer acceptable to have chocolate for breakfast. Putting Baileys in your coffee and on your cereal is generally frowned upon. The mince pies are now gone for another year, and my jeans seem to have shrunk in the wash.
One thing that wasn’t painful to return to however, was the full-year performance data for our investments, which has now been released. The final six weeks of 2023 saw a strong rally in both stock markets and bond markets, which resulted in 2023 closing out as a good year overall. Inflation continued to retrace, and for the first time, the US and European central banks began making noises about - ‘whisper it’ – interest rate cuts. As a result, general sentiment has improved, after being rather bearish for most of 2023.
As a new year opens up before us, I’m writing with some thoughts on what markets may have in store in 2024, and to inform you of a new set of quarterly investment fact sheets that we’ll be sending to you.
Please note this bulletin is for general information purposes only and should not be considered personal financial advice. Investments carry risk and you may get back less than you invest. Past performance is not a guide to future performance and the value of investments may fall as well as rise.
New Quarterly Investment Fact Sheets
This month sees the launch of a new set of quarterly investment fact sheets created by Wetherall’s and Tatton, which we’ll be trialling in 2024. These will be emailed to you directly in January, April, July and October, with the first issue due to be sent this week.
Something I always try to do during your annual review, is to cater to your individual needs and interest levels, when it comes to discussing your investments. Whilst some of you enjoy digging into the detail of your portfolio and poring over charts and statistics, I know that others find it rather dry, preferring to focus on the overall financial plan and leaving us to get on with the investment management element in the background.
The new quarterly investment reports we’ll be issuing are likely to appeal more to the former. They’re designed more for those of you who take a close interest in investments and markets, to help keep you informed between our financial reviews. If you are of this disposition, I hope you find them useful and informative, and we would love to hear your feedback.
If this is not your cup of tea however, engaging with these new reports is entirely optional. If you feel the content is a bit on the heavy side for you, please don’t feel obligated to read them. If you would prefer not to receive them at all, just let us know, and we will opt you out of future issues.
Either way, please don’t forget that you can always ring or email me any time, if you have any questions about your investments, markets, or any other financial matter.
Market Commentary and Outlook 2024
As we look forward into 2024, receding inflation and falling interest rates could well be the key that unlocks the next bull run in stock markets. This will also potentially support the recovery of government and corporate bond valuations, which took a battering in 2022, when inflation and interest rates first began to surge. Whether you sit at the more cautious end of the investment spectrum, or are more tilted towards higher growth, we’ll continue to see volatility in 2024 no doubt. However, the potential for gains over the next few years looks positive.
I’ve often said that the difficulties that began in 2022 will take time to run their course, and that it is a journey that can be divided into two chapters.
Chapter one was all about inflation, and the success - or failure - of central bankers and other market forces in bringing it to heel. Last year we watched the monthly inflation figures with trepidation, as the longer inflation ran hot, the more interest rate hikes were likely to continue, putting increasing pressure on mortgage borrowers, businesses, and markets. Experts now agree that it is likely that we have reached the peak of the interest rate cycle. Inflation is falling back to much more tolerable levels. Assuming we don’t see a sudden resurgence, it appears that we have finally reached the end of this difficult (and long-winded) first chapter.
Chapter two, is now all about the aftermath. The problem for central banks using interest rate policy to curb inflation, is that; a) it’s pretty much the only tool in the box and; b) it’s a pretty blunt instrument. What do I mean by this? Well, there is a lag between pushing the button and seeing the results. The impact of a rate rise made today, is unlikely to show itself immediately, and may take six to nine months to become fully apparent.
This means that there is still potential for more twists in the tale before the story is over. Central banks must now walk a fiscal tightrope as they observe how the full effects of their rate rises play out and decide how to act. Cut rates too soon, and they risk inflation returning. Cut rates too late, and they risk recession. This is where the ‘soft landing or hard landing’ analogy you may have read about comes in.
The soft landing scenario is one where central banks get it just about right. Inflation returns to normal and interest rates are reduced before they put too much pressure on households and businesses. The economy may falter a little – or enter a shallow recession – but in this situation, further difficulties are shaken off quickly and things soon gets back into growth mode.
The hard landing scenario, is where central banks keep rates higher for longer, during which time households struggle, and the economy enters a real recession, which cuts deeper, and takes longer to recover from.
So far, despite rising rates, consumers and global economies have proven far more resilient than anticipated. If the media were to be believed then we would all have been swallowed whole by the cost of living crisis. But in reality, after over a decade of super-low interest rates, households have dealt far better with higher interest rates and inflation than expected. Whilst nothing is guaranteed, given the resilience of consumers and the economy in general, the current consensus is that a soft landing may well be in sight.
So what does this mean for us as investors? Well, we don’t get wrapped up in short-term returns, as we’re long-term investors. That said, it is encouraging to see portfolios having had a welcome boost towards the end of 2023, and to see sentiment having improved in general. We will continue to watch central banks with interest, and remain cautiously optimistic about the potential for interest rates to begin falling back later this year, and the potentially positive implications this has for our investments.
With that I'll close for now. If you have any questions about this bulletin, your finances in general, or the new quarterly face sheets once they arrive, please just let me know.
