WeekWatch | 6 January 2020

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WeekWatch

06 January 2020

Stock Take

Back in 2008, Ford took apart a Ford Focus and had several of its parts strung as musical instruments, among them a ‘clutch guitar’ and ‘window harp’. In the ensuing TV advert, a 15-strong orchestra played a piece together. “Beautifully arranged”, proclaimed the advert’s sign-off.

At the close of the 2010s, the auto-orchestral cross-over was ignobly reversed, as Carlos Ghosn, the 5’6″ former CEO of Nissan, fled Japan hidden in the double bass case of a group of ex-special forces soldiers who were disguised as a Gregorian music band – presumably Ghosn was a little less than “beautifully arranged”. (The fugitive faces charges in Japan of falsifying records for personal gain.) On New Year’s Eve, Ghosn was pictured celebrating his improbable escape at dinner in Lebanon.

He certainly wasn’t celebrating the share price, which fell both last year and across the decade as a whole; indeed, it’s even down in early trading in 2020. Still, despite his supposed crimes, it’s not all his fault. The S&P 500 Automobiles index – a pretty good picture of US sentiment about the industry – had a pretty indifferent decade. (The latest UK data, released this morning, showed automotive sales at a six-year low.) One of the principal reasons, of course, has been the threat of new technologies.

A decade of returns
The companies bringing that technological change have also led stock gains throughout the decade. The S&P 500 ended 2019 up by a stunning 29%, but was significantly outdone by its constituent FAANG stocks, especially late in the year. Across the 2010s as a whole, the index gained 190%, but the FAANGs delivered many of the gains: the S&P 500 Information Technology index rose by 335% over the 2010s.

It wasn’t just the S&P striking new highs. The Nasdaq broke through 9,000 points for the first time over Christmas, aided by a surge for retail stocks: Amazon had its best day on markets in several months. The Dow Jones Industrial Average, meanwhile, clocked its 21st record close of 2019. It has, in short, been an expensive year – and expensive decade – to remain out of the market, despite the many surprise events that hit markets in the short term.

“The big temptation for investors is to see the news and do something new, but it’s all too often a mistake,” said Tom Beal, CIO at St. James’s Place. “The last decade has shown why investors need to keep their plans for 2030 in mind, and worry much less about what 2020 might have in store.”

US-China
As ever, stocks were particularly sensitive to developments in the US and China, and investors found cause for hope over the holiday season: an initial US–China trade deal was agreed; Hong Kong showed signs of recovery in December; Huawei reported revenues were up 18% despite ongoing US pressure; US jobs figures came in positive; and the People’s Bank of China announced a cut to the bank reserve requirement – effectively a supportive move for markets.

There were more technical financial reasons for optimism too, among them the US yield curve. It had inverted earlier in the year, meaning that two-year debt was offering better yields than 10-year debt; such an inversion has occurred before every US recession of the past 50 years. However, the year closed with the inversion very much undone; bond investors would seem to think that an imminent US recession is now unlikely.

There were plenty of tensions, all the same. Angered by UK government comments on Hong Kong, China halted the Shanghai-London Stock Connect, an alliance which allowed companies listed on one of the cities’ exchanges to apply to sell on the other. In 2019, Huatai Securities became the first (and only) company to use the link, raising $1.54 billion on the London Stock Exchange as a result.

More seriously, the US acknowledged that it was behind the assassination of a leading Iranian general in Baghdad on Friday morning. The killing comes after the US has made every effort to pull troops and support out of the region, leaving Russia and Iran potentially greater latitude. Defence stocks rose, but so did the price of a barrel of Brent crude, which is now above $70. In crude terms, the US can perhaps afford to pull out of the Middle East more than just a few years ago, given its own shale oil industry; but the global flow of oil could still be affected. The same day as the assassination, Russia, China and Iran announced they would be holding joint naval drills in the Gulf of Oman, a key channel for global oil flows and traditionally on the patrolling route of the US Fifth Fleet.

Financial Crisis debt
Yet for all the uncertainties of the new decade, new research by AllianceBernstein shows that bank and household debt – the two major debt piles of the global financial crisis – had been brought under control by decade-end. Moreover, European government bonds – a byword for crisis in the early 2010s – outperformed their peers over the decade. As for the UK, while manufacturing and retail indices, together with growth forecasts, looked far from impressive, the final quarter of 2019 saw sterling rise significantly and business confidence lift in December.

Wealth Check

For many people, January arrives with a familiar dread: Self Assessment.

While it may be at the bottom of your to-do list, particularly if you have a tax bill to pay, filing your tax return is also an opportunity to reclaim your money.

For instance, if you are a higher or an additional rate tax payer, making contributions to a personal pension, including additional contributions over and above your workplace pension, you may be entitled to claim extra tax relief via your Self Assessment tax return.

If you have failed to claim the extra relief in the past, you can still claim relief for the previous three tax years. However, if you are yet to claim tax relief for contributions made in the 2016/17 tax year, you need to act quickly. The deadline for paper forms has already passed, but those submitting tax returns online have until midnight on 31 January.

“For many people, getting on top of their finances is a key New Year’s resolution and claiming back tax relief via their Self Assessment tax return should be part of that,” says Tony Clark, Head of Retirement Marketing at St. James’s Place.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time.  Tax relief is dependent on individual circumstances.

In The Picture

A look at historical interest rates in the UK makes it quickly apparent that the Bank of England has not been helping cash savers over the past decade. 

 

The Last Word

They attacked us, & we hit back. If they attack again, which I would strongly advise them not to do, we will hit them harder than they have ever been hit before!
Donald Trump, tweeting about Iran over the weekend

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2020; all rights reserved

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