Wealth Watch - 8 July

Stock Take

Although last week’s landslide election victory for Keir Starmer’s Labour Party might have marked a seismic political shift, the initial reaction from markets was somewhat muted.

This was perhaps due to strong polling in the months leading up to the election, allowing investors to effectively ‘price in’ the anticipated election results.

Nevertheless, the scale of the victory has dealt Starmer a strong political hand. Labour ended with 411 out of a possible 650 seats. This commanding majority should, in theory, allow them to implement their manifesto promises. After a relatively rapid series of Prime Ministers since 2016, greater political stability will also be welcome.

That said, the new government is likely to face some significant economic challenges. Although the economy is no longer in recession and inflation is back at 2%, the new Government has inherited an economy currently recording low growth, high levels of public debt, and with inflationary challenges remaining.

It’s likely we’ll get a feel for the Government’s plans in the coming weeks and months; however, the Autumn Budget will be one of the first real tests for equity markets to assess Labour’s fiscal plans.

For now, Sue Noffke, Head of Equities at Schroders says the business community seems relaxed about the prospect of a Labour Government. She notes: “The mini-Budget blowout in 2022 showed how poor economic management can negatively impact investor confidence and UK assets.

“It seems bizarre to say this, but it’s probably helpful that we had that blowout, and I think the market knows this too. It has shown everyone what’s not possible and the chancellor-in-waiting Rachel Reeves seems to have really taken the lessons on board.”

Specific market sectors in the UK look likely to benefit from the new Government. Examples include infrastructure and defence industries, given Labours promises for these areas. Friday saw shares of a number of UK house builders jump on the potential 1.5 million new homes Labour promised would be built in the next five years. This ambitious target will likely require changes to planning regulations, so may take some time to come to fruition.

Ultimately, Sarah Ruggins, Head of Investment Specialists at St. James's Place, noted: “Overall, it’s important that - despite their increased confidence – investors do not get ahead of themselves by making any rash, short term portfolio decisions in response to today’s news. Not only are specific policies still somewhat unclear, but our recent analysis of UK market performance data spanning the past 10 UK elections, from 1987, found no clear trends between election outcome and market performance. Investors should take this on board and adopt a long-term approach to investing, which refrains from trying to time the market, and instead focuses on building a diversified portfolio across asset classes and geographies, tailoring this to meet specific return and risk objectives.”

The UK isn’t the only country going through an election. The French Parliamentary election has proven far more unpredictable that the UK one. Last week was challenging for European equities after the first round of voting suggested the far right National Rally party would become the largest party.

However, as the week progressed, the centre and left parties agreed to work together, to avoid splitting votes. Over the weekend it was confirmed this, plus a higher-than-expected turnout had helped the left wing New Popular Front win the most seats in the second round of voting, followed by Macron’s centrist Ensemble party. The National Rally ended third.

Although this will result in a hung parliament, markets have reacted positively to the surprise news. The French CAC 40 has recovered 2.62% in local currency, recouping the previous week’s losses.

Finally, the US, which is facing its own election later this year, saw the S&P 500 up 1.95% and the NASDAQ Composite up 3.5% last week. This was despite a shortened week thanks to the Fourth of July holidays. Growth was helped by strong performance from a few larger companies, including Tesla, Apple and Meta. Meanwhile weaker economic data was released, increasing the likelihood that an interest rate cut will be coming sooner than later.

Schroders is a fund manager for St. James's Place.

Wealth Check

Anyone with a challenging job knows how hard it can be to stay on top of things at home as well as at work. Keeping track of your finances and ensuring your money works as hard as possible can be tricky when there are other matters to think about. However, there’s no need to try and keep that extra plate spinning when you can delegate it to a specialist.

Lawyers and accountants can be very time poor, which often means personal life administration gets left at the bottom of the pile. They’re often too busy with their day job to put a strategy in place.

This is especially the case for business owners, who often have very little distinction between personal and business planning.

Someone in their mid-40s for example may have significant demands on their time and income, and they're focused on work, family and sometimes ageing parents too, with no time for their own planning.

Those short-term challenges can make it difficult to take a step back, look at the big picture and plan for the life ahead. A financial adviser will help them understand what’s important to them and what good looks like in terms of when they can slow down later on.

It’s about helping them see a way through, so they have options.

Once you’ve worked with an adviser to build a picture of what you have and where you want to go, they can be left to get on with a lot of the job on your behalf.

Advice can add particular value for high earners when it comes to pensions – a frequently complex area where the rules have a habit of changing on a regular basis. While long-term financial plans are often built on the foundation of tax wrappers such as pensions and ISAs, it’s easy to miss out on the tax reliefs and allowances that can make such a big difference in the long run.

Financial advice and planning isn’t just about money. It encompasses much more than that - hopes and fears, lifestyle and ambitions, security, and peace of mind. In that sense, financial advice isn’t so much the vehicle as the roadmap, helping someone get to where they want to go in life.

So, investing a bit of time and money in financial advice can play the same role for your financial wellbeing as exercise and a good diet can for your physical health.

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.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

The Last Word

“It feels good, I have to be honest. Four-and-a-half years of work changing the party, this is what it is for – a changed Labour Party ready to serve our country, ready to restore Britain to the service of working people.”

Sir Keir Starmer, the new British Prime Minister, celebrates his electoral victory.