Andrew’s Views

Markets continued with modest gains in June, with most of the news being about politics rather than economic or corporate news. This is an election heavy year with both the UK and France’s elections having taken place and the US election coming in November.

There were some concerns that the far-right in France with Marie Le Pen’s National Rally Party were looking to gain significantly more seats than expected in the first round of voting. This caused market jitters as their policy agenda seemed more fiscally cavalier than the more traditional fiscal policy of the main Centre and left parties. Those jitters have now largely settled as the parties came together to tactically make sure the Far-Right won much fewer seats in the second round than they predicted. The rest of Europe is now looking to try similar tactics as the far-right gain in other countries and districts.

In a similar vein, the dramatic win in the UK by Keir Starmer was largely gifted to him by a split in the right vote rather than a large change in people voting for Labour. Labour only won 33.8% of the vote, a lower percentage than in 2017 with Jeremy Corbyn at the helm, however, with Reform taking over 14% of the vote and only 5 seats, this was mainly a swing away from the Conservatives, the First Past the Post system meant this cause huge seat gains for both Labour and the Liberal Democrats.

As a Labour win was largely expected this been met fairly neutrally by the markets with no substantial gains or falls. In the run up to the election the markets reacted positively to a potential Labour win, more due to Labour’s commitment to an extended period of economic orthodoxy to avoid a report of the infamous ‘Trussenomics’ which was likely the silver economic bullet that finally killed of the Tory Reign. Labour are seen as a more functional governing party compared to the years of division, infighting and leadership contests we’ve had from the Conservatives over the last few years.

In the US the race was largely seen as too close to call and then, since the debate, there is a large portion of the Democratic Party calling for Joe Biden to step down or else hand a ‘Bigly’ win to Trump. There was good economic news out of the US recently with job growth ahead of expectations, wage growth has slowed leading to a better chance of interest rate cuts in the near future, which is good for both businesses looking to expand as well as people with mortgages, i.e. the working public. I wouldn’t expect any huge gains in the coming months until we see one candidate or the other creating a large lead in the poles or an actual win. Both candidates are good for business, Joe Biden for public spending and jobs creation, Donald Trump with likely tax cuts and imposing tariffs on the flow of foreign imports. It’s a wait and see game at the moment.

AI continues to dominate the North American market with Nvidia briefly becoming the worlds most valuable company and broadly American markets were up 4%, as were Asian equities as well. Europe fell slightly by 1.7% on the news of the Far-Right’s performance in the French elections. Global property surprised expectation by rising 1.9%, shrugging off poor performance for the last couple of months. Gold was flat and sovereign debt (loans to governments rather than companies) performed slightly better than corporate bonds.

Over all I think the US will do well going forward as there is a potential upside no matter who wins the election. I think that UK equites are very cheap at the moment and, due to the new government being more consistent than the last, likely to see some steady growth going forward. Bonds look like they will perform well as interest rates decline in all the major markets and that decline is looking like it will start sooner rather than later. Other than that I don’t see any great weaknesses at present and the recovery is coming along nicely with most portfolios in double digit returns over the last 12 months.