Latest investment update

Stock markets have continued to perform strongly as companies report solid profits and markets anticipate more US interest rate cuts. 

A series of all-time stock market highs and multi-billion dollar artificial intelligence (AI) deals hit headlines and heartened investors. But current excitement levels have also sparked fears of a potential bubble, with some analysts asking if the positivity is fuelled by over-enthusiasm about the AI story. 

The experts at Coutts – the bank behind our funds – feel such worries are overblown. Their analysis shows that current stock market performance is grounded in solid fundamentals rather than speculation. 

Monique Wong, Head of Multi-Asset Portfolio Management at Coutts, says, “Recent gains are underpinned by a steadily growing economy, resilient employment figures and well-managed, profitable businesses.

“While global growth has moderated, and the jobs market has cooled slightly, people still have jobs and are spending – helping businesses and investors alike.” 

America’s central bank the US Federal Reserve (Fed) cut interest rates last month for the second time this year, which encouraged investors. But comments from its Chair Jerome Powell that inflation remained a concern and the jobs market had become more challenged dampened some of that optimism. 

Although expectations of a US rate cut in December have eased, the overall backdrop points towards further cuts to come, creating a supportive environment for investment markets. This is important because Coutts invests in global stock markets and such assets – particularly those in developed economies – tend to be heavily influenced by the US.

The Fed is to a certain extent ‘flying blind’ due to the US government shutdown, which means a lot of important economic data isn’t currently being published, including the country’s key, regular jobs report. In spite of this, the Fed believes it has enough insight to make informed decisions, and that has helped keep markets relatively steady. 

Meanwhile, here in the UK, markets currently expect two Bank of England interest rate cuts over the next year.

Autumn is now upon us, which means we are amidst the latest company earnings season covering July to September. After each quarter, companies officially report how they performed over the period which gives investors a good picture of current conditions.

Expectations going into this earnings season were upbeat. At the time of writing, estimates pointed to healthy year-on-year earnings growth in the US of 14%.

The big banks in particular delivered strong results largely driven by their trading and investment banking divisions. Bank stocks dipped briefly following the collapse of two US auto sector firms, but markets soon regained their footing as it became clear the damage was contained.

Overall, at the time of writing, about 82% of S&P 500 companies beat their profit expectations – the highest proportion in four years. 

Here you’ll find our previous investment market updates.