What does it all mean | Weekly Market Update

31 May, 2024

Here I am, it’s Friday morning and I am writing my weekly note. I am not really someone who spends much time dwelling on questions like “what does it all mean?”. But equally, there is a lot of this sort of investment content out there. So, I was briefly heartened last week to see some research from the US that said:

  1. Over half of Americans think the economy is currently in recession
  2. 49% believe the stock market is down for the year
  3. 49% believe unemployment is at a 50 year high

In fact, the correct answers are:

  1. US GDP growth is currently running at 2.9% real (and 5.4% before inflation) which is above long term averages
  2. The US stock market is up over 10% for the year
  3. Unemployment is close to a 50 year low

In light of this, I will continue to do my (very) small bit to keep the broader public (or at least the clients of IPS) up to date on what is going on in markets. You will have your own theories on what is behind this. I would just highlight a couple of things here. First, whatever you think of the BBC, I am very glad we have it. US news is commercial news. The incentive is to tell people what they want to hear to keep them tuning in and so sell advertising. And for Republicans the message is that the economy is in a terrible place it’s time for a new president (Republicans are generally much more gloomy on the economy than Democrats). At least our most watched news source makes some attempt at balance.

Second, and linked to this, social media is even more incentivised to feed you information that confirms what you already think. I don’t believe the algorithms behind it have any dark bias: they are simply programmed to maximise your attention. Ways to do this include (along with the cute cat videos) telling you what you are afraid of really is as bad as you thought. Negativity, unfortunately, sells when it comes to news. Today, more than ever, we need to make the effort to access as many diverse news sources as we can. Passively accepting what we are fed at face value has never really been a winning strategy.

And so, in the spirit of investor education, here are some long term investment returns that I find useful when thinking about the outlook for our own portfolios. Goldman Sachs ran some numbers this week on the longer term performance of “traditional” (60% equity, 40% bond) portfolios. 10 year rolling performance numbers after inflation and since 1900 for different growth and inflation regimes are below.

US Rolling 10 year investment returns after inflation

The good news is an average of inflation plus 5% is (I think) a pretty good long term return to aim for. With bond yields back closer to 5% today’s starting point is not that bad versus history for the bond part of these portfolios. If the economic growth is steady and inflation can stay in the 2% to 4% range (more or less where we are today) then there is also some upside to hope for.

My other takeaway – and this doubles as a personal reminder – is that for many investors, beating inflation really is the number one objective. This means higher inflation regimes (as we saw in the 1970s and for the last couple of years) are the biggest risk to our clients’ longer term prosperity. I have written a lot about inflation and inflation risks in these weekly notes over the last couple of years. These numbers are a reminder to keep that focus on inflation firmly in place.


Chris Brown, CIO

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.


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