In spite of elevated interest rate levels, inflation and worldwide elections, stock market returns were reasonable over the quarter, bolstered by the prospects of falling interest rates, moderating inflation and surprisingly strong consumption seen in many western economies, led by the all-important American consumer. Our commentary strives to avoid politics. However, such is the confluence of elections around the world this year with over two billion people casting their votes, we have made an exception given that the established order is clearly being challenged.
Here in the UK, the surprise election has caused much consternation amongst Conservative MPs, with it being suggested that Mr. Sunak had been advised to go early in an attempt to limit the extent of the predicted landslide for Labour. Labour’s front bench seemed fortunate in benefiting from a recovering economy and rising real wages – positives which were ignored in the run up to the election. Whilst turnout was low, regardless of one's politics, our democracy requires a robust party in opposition as opposed to opposition coming from within factions of the party in power.
Despite losing the first of numerous lawsuits, polls suggest that Donald Trump will win November’s Presidential Election. Whilst his previous victory benefited stock markets, he remains a hugely unpredictable character on the world stage. European elections are seeing a sharp move towards populist far right politicians in Germany, Italy, Belgium, Holland and France where universal bafflement greeted Macron’s call for a snap election. All this at a time when the UK is seemingly moving to the left.
UK and US Central Banks continue to fret about their 2% inflation target, which should instead be seen as a relic of the disinflation that China started exporting in the 1990s given that this lowly figure is too close to stagnation. A level of around 3% and a commensurate reduction in interest rates would seem more appropriate.
‘Big Government’ that accompanied the pandemic continues around the world with unsustainable spending pushing debt to record levels. So vast are the numbers concerned that we can no longer assimilate their meaning. By example, the UK national debt effectively stands at 100% of GDP or £2.7 trillion which, with such a small leading digit, sounds manageable. However, to provide some context, one million seconds ago was 11 days ago: one billion seconds ago takes you back to 1993 whilst, astonishingly, one trillion seconds ago was almost 30,000 BC.
Political and economic concerns have failed to destabilise stock markets this year as a number of commentators had feared. Pleasingly, there has been a broadening out from mega-cap technology stocks to financials, health care and consumer discretionary. Indeed, markets may benefit from the associated electoral stability which, in the UK especially, may see the end of a politically inspired discount placed on our domestic market.
