Investment markets:

Latest investment update

The value of investments can fall as well as rise and you may not get back the full amount you invest. Eligibility criteria, fees and charges apply. You should continue to hold cash for your short-term needs.

Published: May 2024

Stubborn inflation can’t stop stock market rises

The Coutts team behind NatWest Invest still sees a positive outlook for investors this year despite price rises proving sticky.

Overall, it’s been a month of ups and downs for investors as stubborn inflation and geopolitical risks took their toll a little. But the year so far remains positive.

Global stock markets have been doing well overall, led by the US but with initial signs of positivity in Europe and Asia coming through too. China’s economy grew 5.3% in the first quarter of the year, for example, according to the country’s National Bureau of Statistics.

But the elephant in the room is the aforementioned issue of inflation. It’s proving a bit sticky, failing to fall as much as initially expected. This is actually because of the very economic strength that’s been boosting stock markets. People are making money and spending it, which is supporting demand and preventing price rises from slowing.

The number of interest rate cuts markets expect from America this year has dropped as a result – from seven at the start of 2024 to just one now. This matters because lower interest rates can help boost company profits, and America is very influential on global markets.

Lilian Chovin, Head of Asset Allocation at Coutts, said: “The drop in the number of expected US interest rate cuts did cause some brief volatility in markets, but they soon recovered. Barring any major shocks, in our view we’re still seeing a positive outlook for investors this year.”

Prepared for the positive

Coutts has been well-positioned for current conditions since late last year, having increased its investment in stocks.

They bolstered this pro-stock stance even further in February by cashing in some of their investments in US government bonds in February, which are more exposed to the interest rate cut uncertainty.

The team also continues to hold high yield corporate bonds, which tend to perform well when the economy expands and have been supported by interest rates peaking.

Earnings season off to strong start

US earnings season has been in full swing, with 79% of the 400 companies who reported their performance at the time of writing beating expectations. Earnings growth for the S&P 500 is forecast to be 8.7% for this year and 13.2% in 2025, according to Bloomberg.

Coutts Senior Equity Specialist Howard Sparks said: “There have been concerns that the recent dominance of a handful of tech companies could cause a re-run of the dot.com bubble, but they appear to be misplaced, at least for now. Current valuations are backed up by solid earnings.

“As the year progresses, earnings growth from the S&P 500 is expected to broaden out beyond the so-called Magnificent 7 of Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla. But first quarter earnings were dominated by these mega-caps which provided virtually all the earnings growth during Q1.”

Learn more about investments

Whether you’re an experienced investor or just finding out what investing is, we’ve got a range of articles to help you understand more about investing.

We regularly update our articles depending on what’s happening in the market so check back for future updates.

Something else we can help you with?