Last week US Federal Reserve Chairman Jay Powell dusted off his red suit and white beard before bestowing the best holiday gift possible on the investment community. Not only did the Fed hold interest rates, projections also signalled that there could well be a higher than expected number of cuts planned for 2024 in the face of falling inflation and a worsening domestic economy. It was a different message to that given by Bank of England however, where Andrew Bailey assumed the role of Ebenezer Scrooge and repeated the warning that rates could yet rise further.
In terms of economic news, UK wage inflation fell in the three months to October, while the UK unemployment rate remained unchanged at 4.2%. This data should offer some comfort that recent interest rate rises continue to help slow the economy, and that perhaps no further increases are needed.
I continue to fear that next year will be difficult for some UK businesses, particularly those with significant debt to refinance. Recent figures showed that company insolvencies rose by 21% in November as higher borrowing costs begin to feed through to company balance sheets. I am also mindful of the effect on the UK consumer, with the number of mortgage arrears at the highest level since 2015 and predicted to increase further through to the end of 2025.
On the whole, stock markets have reacted positively to recent news, although interestingly, gains in December are not that unusual and a ‘Santa rally’ has delivered positive returns for the FTSE100 in 25 of the past 31 years. Nobody really knows what causes this phenomenon but ultimately investors should remember that it is time in the market that counts, rather than trying to time the market itself. I wish you all a restful Christmas period and will see you again in the New Year.