The Month in a Minute
📰 Overall: Following a sell-off of stocks at the end of July due to concerns about the US economy, August saw a return to highs for many markets. This more uncertain environment provided a profitable environment for bonds, benefitting our more cautious stance as a result.
💪 Benchmark Performance: Wealthify's Original Plans and lower risk Ethical Plans all outperformed their benchmarks, although higher risk Ethical Plans underperformed theirs.
📈 Market Movers: US (+2.3%), Europe (+1.3%).
🗒️ Plan Summary: Original and Ethical Plans with a higher allocation to bonds performed better than those with a higher allocation to shares.
🌍 Original Plans: Shares (+0.3%) and bonds (+1.0%) both increased.
🌱 Ethical Plans: Shares (-0.4%) decreased but bonds (+0.9%) increased.
🕰️ Going Forward: Our preference for bonds favoured more defensive Wealthify Plans this month, as they outperformed riskier one. We remain confident in our cautious positioning — and are optimistic that the diverse set of opportunities we’ve selected will continue to have a positive effect on Plans for the rest of 2024 (whilst still providing protection if economic conditions deteriorate).
August was a volatile month for markets, as many recovered from losses seen at the end of July.
August kicked off with uncertainty, as fears surrounding the health of the US jobs market and wider economy caused markets to continue their decline. Investors saw this as an opportunity to take advantage of buying at lower prices though, as many markets rebounded from their lows — with some even breaking all-time highs.
With this uncertainty, however, came a good environment for bonds, which rallied and benefitted Wealthy’s cautious stance.
This drastic rebound in shares highlights how quickly investor sentiment can change, perhaps confirming that July’s sell-off was simply an overreaction. The narrative driving this is that inflation is under control, growth is strong, and the Federal Reserve is expected to cut interest rates (the first of which is likely to be in September).
Many investors are pricing in a ‘soft landing’ scenario, where the Federal Reserve can cut interest rates without causing a recession. This – along with expectations of four interest rate cuts this year – could be setting markets up for disappointment.
This is at a time where investors seem more prone to be disappointed.
Take Nvidia’s earnings release this month, for example.
A hugely anticipated announcement with the potential to set the market direction, the Artificial Intelligence (AI) giant’s stock price still fell following its release — and that’s despite beating expectations.
Questions are being asked about current tech stock valuations, as well as AI’s future profitability, the hype around which has been a key driver of returns in 2024 (particularly in some of the largest stocks, such as the Magnificent 7).
We’re not out of the woods just yet though.
All eyes continue to be on the US labour market and consumer, to see how the economy is holding up under the pressure of high interest rates; markets are likely to be very reactive to any data releases as a result.
The UK saw its first interest rate cut this month and, with inflation continuing to ease, another cut is expected by the end of the year.
The European Central Bank (ECB) is expected to announce its second rate cut in September, as well as another by the end of the year.
European markets also experienced a similar bounce back to the US, with the German Dax, for example, reaching all-time highs.
Markets
US markets (+2.3%) were the strongest performers this month, with the S&P 500 and Dow Jones both climbing back close to their all-time highs. Whilst rebounding and finishing on a positive, the tech-heavy Nasdaq struggled to do the same.
European markets (+1.3%) also saw a strong month as inflation continued to ease, and investors look forward to another potential rate cut from the ECB in September.
One of the worst performers of the month was Japan (-2.7%); although it still experienced a modest rebound, it also struggled due to its heavy makeup of tech stocks.
Currency
This month saw the pound strengthen against the dollar by 2.1%. The US dollar weakened against most major currencies this month, due to the struggling labour market and expectation of four rate cuts by the end of 2024.
The pound also gained against the euro this month by 0.1%, although it struggled against most other major currencies. Despite this (and according to the Bank of America), the pound is set to be one of the world’s top-performing major currencies in 2024, due to expectations of “above trend growth” in the UK economy and slower interest rate cuts.
Investment type performance breakdown
August was a good month for our Plans, as bonds outperformed shares and provided strong returns for our Original (+1.0%) and Ethical (+0.9%) Plans.
Our cautious positioning benefitted from the uncertainty surrounding the US economy; as expected, Plans with a higher allocation to bonds performed better than those with a higher allocation to shares.
Shares still provided small returns for our Original (+0.3%) Plans, although they did cause small loses in our Ethical (-0.4%) Plans due to their larger makeup of tech stocks. Our healthy allocation to the US helped in this area, however.
Some of the strongest performers for our Original Plans this month were property (+3.5%) and infrastructure (+1.6%), spurred on by expectations of an upcoming interest rate cut from the Federal Reserve.
The money market continues to benefit from high interest rates, providing positive returns for both Ethical and Original Plans.
Summary with Plan details
Due to uncertainty about the health of the US economy and valuation of tech companies, Plans with a higher allocation to bonds performed better than those with a higher allocation to shares.
Our Investment Team continues to actively monitor the financial markets and their impact on Plans — and are always ready to act in your best interest as events unfold. We are continually evaluating new market information and key market drivers to help keep your Investment Plan on track.
It’s important to remember that it’s normal for markets to go up and down, with periods of volatility to be expected when you invest. As always, we continue to look for opportunities to best position your investments, with the goal of protecting your money and achieving your long-term objectives.
With investing your capital is at risk, the value of your investments can go down as well as up, and you could get back less than invested.
Past performance is not a reliable indicator of future results.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
