Investment markets have performed positively overall this year thanks to falling inflation, peaking interest rates and “the US recession that never was”, according to experts at Coutts bank.

In fact, greater economic stability and improved company performance helped November become “the best month we’ve seen since the Covid vaccine announcement in November 2020”, according to Coutts’ Head of Asset Allocation Monique Wong. 

Monique also told the audience we were entering 2024 with a more balanced economic backdrop.

“Inflation has fallen and interest rate rises are behind us in the US, Europe and UK,” she said. “And that’s favourable for multi-asset funds. It also means interest rate cuts are on the table for 2024.”

NatWest Premier customers heard this and more directly from the Coutts’ specialists who run their investments at a recent ‘Premier in Conversation’ virtual event. You can watch the full event below.

The value of investments can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. 

A healthy market rally

Stock and bond markets surged in November, following a bumpy period, thanks to greater interest rate certainty, better-than-expected economic growth and good company performance.

Monique said, “This market rally has been quite broad based, which is healthy. Much healthier than earlier in the year when positive performance was concentrated on just a few ‘artificial intelligence’ stocks. Conditions are now more sustainable for it to run further.”

Coutts’ Managing Director Alan Higgins added, “At the start of the year a lot of people were looking at recession in the US. We didn’t get one. But even away from the US, there is a global equity rally going on. Admittedly we’re not seeing it much in the UK. But it is very real outside the UK.”

Well-positioned for the positive landscape

Coutts had already positioned its portfolios and funds well for this more positive backdrop. They started shifting their focus towards riskier assets that could benefit from improved conditions over the summer, having been more cautious at the start of the year.

The team’s changes included buying more stocks worldwide through a fund that specialises in quality companies primed to navigate current conditions. They also bought long maturity US government bonds which offer potential gains should yields fall (and prices rise) – more likely as inflation moderates. Both these moves have already supported performance.

Monique said, “Our more conservative positioning earlier in the year was right given what we knew at the time – our US recession indicator was rising and we wanted to mitigate potential negative outcomes.

“But as the year progressed we saw resilience, then expansion, and company earnings started to improve. So we knew it was time to shift our approach since mid-summer, and that meant we were well-placed for the November surge.”

When will interest rates start coming down?

With inflation dropping – falling in the US from a peak of 9.1% last June to 3.2% for the year to October – investors’ attention is turning to when interest rates might actually start to fall too.

Monique said at the event that the market currently expects five interest rate cuts in the US, starting from May next year. But it may not be that simple.

“I don’t think the US Federal Reserve knows now when they are going to cut interest rates,” she said. “It depends on the dynamics of the labour market – if it stays strong, interest rates will stay higher for longer.”

Alan added, “If I were to guess, we will see rate cuts in the US and UK next year, but later in the year and on the conservative side. Central banks want to protect the economy and keep it running. They don’t want to cut rates only to see inflation pick up again. So I think they’re going to be on the cautious side.”

If you’d like to discuss your investment options, please contact the Premier team through Premier 24.

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