The Month in a Minute
📰 Overall: Despite a strong start, mid-July saw shift in markets, as they began falling from their highs. Concerns over the health of the US economy provided a profitable environment for bonds, benefitting our more cautious stance as a result.
💪 Benchmark Performance: Wealthify's Original and Ethical lower risk Plans all outperformed their benchmarks, although Adventurous Plans and Ethical Ambitious slightly underperformed.
📈 Market Movers: UK 250 (+6.5%), UK 100 (+2.5%).
🗒️ 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 (+0.1%) and bonds (+1.7%) both increased.
🌱 Ethical Plans: Shares (-0.2%) decreased but bonds (+1.6%) increased.
🕰️ Going Forward: Our preference towards bonds helped us this month, as more defensive Plans outperformed ones with more risk. We continue to be 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 in the remainder 2024 (whilst still providing protection if economic conditions deteriorate further).
July was a volatile month, with the tech sector experiencing a pull back, as investors prepared for rate cuts and to move money to sectors more sensitive to interest rates.
It was also a pivotal month for markets, as the all-time highs we’ve seen throughout 2024 came to an end following uncertain data about the US economy. This was amplified by a weakening jobs market, with lower demand reigniting recession fears with investors.
In the past, this might have been good news for markets, as it would have increased the likelihood of interest rate cuts. However, with inflation continuing its decline, a reduction in rates from the US Federal Reserve (the Fed) is now widely anticipated to come in September.
Due to this expected rate cut, investors began moving money to riskier assets such as Small Caps and Emerging Markets.
This – along with people beginning to question the profitability of the recent AI hype – has led to declines in big tech companies such as the Magnificent 7.
Many second-quarter earnings reports from tech companies have failed to convince Wall Street that the millions spent on AI will translate into real sales. This has hurt the likes of the Nasdaq and Nikkei in Japan, a country that has benefited recently from tech-related enthusiasm.
If there is the run up toward the US election that many are expecting as well as the Fed’s first interest rate cut in September this stock market correction (typically defined as a temporary 10 to 20% decline in assets) is completely normal — and even necessary.
Despite this decline from their highs, momentum seen at the beginning of the month meant that many markets finished relatively flat, with some even experiencing modest gains.
The UK and Europe led these positive returns, with the drop in the US having limited effect. The UK also experienced a landslide general election, bringing Labour into power for the first time in 14 years. UK investors were encouraged by this new government’s promise of economic growth, with the UK 250 benefiting in particular, thanks to the fact it’s made up of mostly domestic companies.
The UK 100 also saw returns; with inflation now at the Bank of England’s 2% target, investors anticipated and reacted to the likelihood of a UK interest rate cut at the start of August.
At the time of writing (August 5th 2024), you’ve have probably seen markets decline as we move into August. At Wealthify, we’ve maintained a cautious equity exposure, favouring bonds for some time now. As a result, we’re well positioned to deal with market changes.
With stock markets, it’s important to understand that investor sentiment can change in a heartbeat, meaning these declines are completely normal and present opportunities to buy assets at cheaper prices. We’ll continue to monitor markets and are primed to take advantage of these opportunities, should they present themselves.
Markets
The UK 100 (+2.5%) and UK 250 (+6.5%) were the strongest performers this month, as investors were spurred on by Labour’s promises of growth and a potential August interest rate cut.
Following a strong start to the month – as has been the case throughout much of 2024 – the US (+1.1%) nearly had its gains wiped out by the mid-month pull back in its large tech companies. Despite this, markets were left on a slight positive.
Asian markets struggled in July, with Japan (-0.7%) and China (-2.2%) both finishing negative. Following an optimistic first half to 2024, Chinese markets continued to decline from their highs, as data showed it’s still struggling with demand, resulting in lower-than-expected inflation and GDP growth.
Japan’s decline was linked to that of the US, as it was also hurt the by the decline of its domestic tech and chipmaking companies.
Whilst the decline did slow somewhat after the Bank of Japan announced an increase in the company’s interest rate (marking the highest it’s been since 2008), Japanese markets finished with modest loses for the month.
Currency
This month marked a turnaround for the Yen in currency markets, which had been on an aggressive decline throughout most of 2024.
The pound declined against the yen by 5.2%, as hedge funds closed their yen short positions (where borrowed shares are sold with a view to buying them back cheaper in the future), expecting the rise in interest rates from the Bank of Japan that came towards the end of the month.
The pound did fare better against other currencies, finishing higher against the US dollar by 1.7% and higher against the Euro by 0.6%.
Investment type performance breakdown
July was a good month for our Plans, which saw bonds outperform shares and provide strong returns for our Original (+1.7%) and Ethical (+1.6%) Plans. Our cautious positioning benefited from the questions surrounding the US economy; as expected, Plans with a higher allocation to bonds performed better than those with a higher allocation to shares.
Despite shares struggling, they still provided small returns in our Original (+0.1%) Plans, although did cause small loses in our Ethical (-0.2%) Plans. Our healthy allocation to the UK 100 and UK 250 helped in this area.
Some of the strongest performers for our Original Plans this month were property (+5.5%) and infrastructure (+5.0%), spurred on by expectations of an upcoming interest rate cut from the Fed.
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 questions about the health of the US economy and a pullback of big tech, 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.
