Hello and welcome to the latest Astute Market Overview.

So much has happened since our last overview, it is difficult to know where to begin!

Let’s start with the US presidential election. We have been anticipating November’s election all year, acutely aware that much can change.

Joe Biden and Donald Trump have long questioned each other’s state of mind and mental fitness for the role of President, and we’ve often speculated (tongue in cheek) that these two candidates might not be the same two standing in November. It turns out that our concerns were justified, as Joe Biden has now stepped aside as presidential candidate and endorsed his running mate, Kamala Harris. Furthermore, a failed assassination attempt of Donald Trump made history, and served to strengthen Trump’s relationship with his supporters.

Whilst both are surprising, I am sure that they are not a surprise to you now. So what does it all mean? Major polls show that Trump is still ahead, but that his lead has narrowed slightly when compared to his lead over Biden.  But as we know, it can all change. Trump’s current pledges appear to be inflationary: potential interference in lowering interest rates, tariffs, and immigration curbs. However, there is still room for more clarity on policies, particularly from Harris once she is declared the official candidate (which looks highly likely, and imminent).

Now let’s turn to the UK. The Labour government have settled into power, and the Chancellor of the Exchequer is preparing us for difficult decisions and potential tax rises in the budget on 30^th October. We’ll cover what could be in the budget in another video before then. For now though, we’ll focus on the markets, which are happy to see a fiscally credible and stable government.

Since our last update, one of the biggest movers of markets has been the strong performance of small and medium sized companies (small/mid-cap stocks) compared to larger companies (or large-cap stocks). We’ve consistently highlighted opportunities in the small and mid-cap space, with these stocks appearing undervalued.

Following the surge in tech stocks in 2023 and into this year, we believed that at some point, the broader market would catch up. At the time of writing (29^th July), the total return of the small and mid-cap index Russell 2000 is 10.42% for July, whilst the large-cap S&P 500 returned only 0.05%, due in part to the poor performance of the tech giants, for example Nvidia, Amazon, Meta and Alphabet.

In the UK, the large-cap FTSE 100 made a total return of 1.52%, whilst the mid-cap FTSE 250 returned 5.48%.

Looking ahead, we are moving into a positive environment for these companies, with potential interest rate cuts on the horizon. Smaller companies are more likely than larger companies to take on debt to finance their operations – the lowering of interest rates will result in more affordable debt for those companies. Larger, more established companies are likely to have reliable cash flows and will be less reliant on debt.

Coming up, we will get a decision from the Federal Reserve Open Market Committee on Wednesday evening – we believe an interest rate hike is unlikely, and that the committee will probably hold off until slightly later into the year.  The Bank of England’s Monetary Policy Committee (MPC) will meet again on Thursday, and here, an interest rate cut is quite possible. The MPC is sitting down following two consecutive CPI inflation releases of 2.0%, which is bang on target for a healthy economy.

See you next time.

5 year total return (30/06/2019-28/07/2024)

FTSE 100 5 year total return: 34.46%
FTSE 250 5 year total return: 25.60%
Russell 2000 5 year total return: 54.46%
S&P 500 5 year total return: 101.63%