CLV Investment Review
Evelyn Partners’ latest Investment Outlook for August 2024 offers critical insights into the global economy, emerging market trends, and investment strategies to consider amidst growing market volatility. Investors are currently facing a range of risks, from the underperformance of the AI sector to potential U.S. recession fears and escalating geopolitical tensions. Despite these concerns, there are opportunities for market stabilization in the months ahead, supported by robust company earnings, anticipated interest rate cuts, and favorable election outcomes.
Daniel Casali, Chief Investment Strategist at Evelyn Partners reported: “Investors are currently nervous about the potential for a number of risks to materialize simultaneously,” Casali observed. “However, robust company earnings, expectations of interest rate cuts, and investor-friendly election results offer some support to stabilize global markets in the coming months.”
AI and Market Performance
The market has recently experienced a downturn, partly due to the AI sector not meeting the lofty expectations set earlier this year. Investors were particularly underwhelmed by the latest financials from mega-cap companies closely associated with AI. Casali pointed out that the performance of these companies is crucial as the market remains heavily reliant on them.
“The consensus expects net income for these companies to grow by 49% over the next 12 months, a significant contrast to the small contraction seen in October 2022, just before the AI boom initiated by ChatGPT,” Casali explained. This highlights the market’s dependence on AI-related stocks, and any underperformance in this sector could have broader implications.
US Recession Risks and Federal Reserve Actions
Another critical concern is the risk of a U.S. recession, particularly after July’s employment data fell short of expectations. Despite these concerns, Casali noted that “U.S. employment is still increasing, and other economic indicators, such as the Federal Reserve Bank of Atlanta’s real-time GDP estimate, remain resilient.”
In addition, there is growing anticipation that the U.S. Federal Reserve might soon cut interest rates, following in the footsteps of the European Central Bank. “Lower inflation and a decelerating labor market increase the likelihood that the Fed will cut interest rates over the coming months,” Casali stated. Such a move could provide much-needed liquidity to the stock market, potentially boosting investor confidence.
Election Uncertainty and UK Market Outlook
Political uncertainty, particularly in the U.S., has also contributed to market anxiety. Casali highlighted the impact of recent events, including President Joe Biden’s withdrawal from the presidential race and an attempted assassination of Republican nominee Donald Trump. These developments underscore the importance of portfolio protection in the lead-up to the U.S. presidential election on November 5th.
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Meanwhile, in the UK, the recent general election brought the Labour Party to power with its largest majority since 1997. Despite the challenges posed by a low voter turnout, Casali believes there are reasons for optimism regarding the UK stock market. “Political stability derived from Labour’s large majority adds a layer of support that has not been there in recent years,” he said.
Casali further elaborated on the potential benefits of Labour’s economic policies, which focus on market-friendly growth and wealth creation. The new government has also indicated plans to overhaul planning rules and streamline listing regulations, potentially attracting more investment into the UK.
Looking Ahead
Despite the current market uncertainties, Casali urged long-term investors to focus on the fundamentals. “It’s important for long-term investors to concentrate on the economy and the ability of companies to generate earnings,” he advised. While the market faces numerous risks, robust earnings growth, potential interest rate cuts, and favorable election outcomes could provide a stable footing for equity markets moving forward.
As global markets navigate these turbulent times, investors in Southeast Asia and beyond will need to remain vigilant, keeping a close eye on both macroeconomic indicators and geopolitical developments that could influence market performance in the months ahead.
