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This is my final weekly note before my summer break. It would be tempting to add the words “well earned” here but, while we have been as busy as ever at IPS, 2024 has, so far, been a fair bit quieter than the dramas of 2020 and 2022. Part of the reason for this was that the Covid period was truly exceptional. Sending everyone home but paying those not working something anyway seemed (and still seems) fair to me but boy was it inflationary. The good news is that this inflation now looks to have more or less washed through the system. We had inflation numbers out of the UK and US this week and both were on the softer side (see below for the US for example). Increasingly, the inflationary surge we saw in 2022 looks to me to be Covid related with no real second round effects (so far). If this is true then Central Banks have plenty of scope to cut rates again should we see any signs of a slowdown.
What is interesting to me is there still isn’t much sign of a growth slowdown even after all those interest rate rises. Retail sales data came out today for the US and sales are trending up, not down:
And UK GDP data – which also came out today – paints a pretty decent picture for us (at least relative to the rest of Europe):
A benign backdrop like this with growth steady and inflation falling is normally pretty good for risk assets, and so it has proved. In 2022, after equities fell 25% or more in response to inflation and higher rates, I wrote that the one crumb of comfort was at least your expected future returns had gone up. Well, here we are, with the MSCI World up over 40% from its 2022 lows. The good news is as long as the macro outlook stays more or less as it is now this should carry on being a good time to be invested. But today’s crumb of discomfort is that higher equity prices probably mean returns will be lower than we have seen in the last 18 months or so.
If that smacks of over-confidence to you, then I fear you might be on to something. I almost spat out my coffee this morning when I saw that over a quarter of Britons thought they could qualify for the 2028 Olympics if they started training today. Of the list below, I think I would have the best shot at dressage. Maybe? And assuming I was able to ride the world’s best dressage trained horse. But I guess this just speaks more about my ignorance of all thing’s dressage (and I naturally cannot ride a horse) than it does about the ease of the sport. All I can do is hope I do a better job of forecasting for the next 4 years than many in this survey appear to have done.
Chris Brown, CIO
cbrown@ipscap.com
The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.
