David Wheildon / November 2024
The benefit of experience is the knowledge that in the economic world there is a cyclical nature to life and we can now say with certainty that we are through the worst of the recent high inflation and interest rates. This is evidenced by the latest inflation figures and the increased talk of a reduction in interest rates. The early years of the current decade have been difficult for investment returns as the combination of Brexit, Covid, the war in Ukraine and the return of inflation have made profitable investing challenging. In those years we have seen a degree of “sideways” movement as markets have taken marginally more than one step forwards followed by one step backwards. I intimated in last quarter’s Review that reducing inflation and falling interest rates are some of the ingredients for better investment returns and as we look back at 2024 there has generally been a pleasing overall improvement in investment values.
The other side of the argument
Sadly it is not all good news as there is always the other side of the argument in any economic discussion. The current primary concern is the geopolitical situation in the Middle East which today, shows no signs of easing; for all the reasons we hope for a reduction in the military action in the area but my role is to focus on the economic situation. It has been a surprise that the oil price has not increased in recent months and today shows no sign of doing so but this could change at any point. Should Iran suffer an attack on its oil production capabilities and oil supply be interrupted there will be a
compensating increase in supply from Saudi Arabia and indeed America (from their shale oil) but that this is unlikely to prevent the oil price rising. Any noticeable increase in the price of oil will bring global inflation back into play; further if companies are already making greater profits thanks to the more attractive economic conditions inflation could quite easily return bringing back the idea that rather than falling, interest rates may have to rise again. Not only just for economic reasons, we all hope for restraint on the military front in the Middle East whilst the fund managers will be watching matters very closely and will take action should the oil price be affected.
A far more stable political situation
Following a number of Government elections through 2024 the wider political situation is now looking far more stable than it did at the beginning of the year and this situation should persist for the next four to five years. The only major election still to be decided is of course in America and even at this stage it is too close to call. Some commentators have suggested that even the recent hurricane hitting the southern states could have an impact on the result as Trump supporters in Florida may not be able to return home to vote. Due to the nature of the electoral college system it is highly likely that the result will be determined by the small number of swing states hence the increased efforts by both candidates in these areas. Admittedly we cannot be certain, but whoever wins should see an economy driving ahead whatever the result. There is however a fear of increased inflation should Donald Trump win, particularly if he does impose the threatened tariffs on overseas goods entering the US. In the past many of his threats of tariffs have not been carried out so the reality may well be that he is able to tell each of the importers to stop crying your heart out and international commerce will continue as usual. It could well be a typical Trump scenario of plenty of noise but not so much action!
Looking forward with a degree of optimism
The outlook for 2025 definitely has areas of concern we must watch out for and there will be volatility at some stage. However with a more stable global political situation, falling inflation and the potential for further falls in interest rates we should be able to look forward with a degree of optimism that the positive investment returns of 2024 will continue into next year. How much of these returns you will be able to retain does of course depend on the taxation changes recently put forward by our new Chancellor. Clearly her direction of travel is for us all to pay more tax (in whatever form that may be) and this brings home the importance of financial planning as well as making an investment return. At SFP we will continue to provide both and ensure that we improve, adapt and overcome (as best we can) any hurdles put in the way of your future financial security.
This article is the opinion of David Wheildon