Latest investment update

Published: April 2024

Investors’ optimism driven by interest rate cut expectations.

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.

Stock markets across the globe have built further on their strong start to the year as investors look toward interest rate cuts on the horizon. We could start seeing them drop from June.

The US Federal Reserve said its outlook for America’s economy remained the same despite inflation being a bit sticky recently, and it shouldn’t impact interest rate cuts expected later in the year – all in all, a good sign.

And the UK stock market rode the wave of the global rally after similar news from the Bank of England. Although UK interest rates were held at 5.25% in March, governor Andrew Bailey said things were “moving in the right direction” when it came to rate cuts.

It’s a bit of a balancing act for the central banks that decide where interest rates should be. If they cut them too soon, rising prices could easily rise again, especially given the improved economic backdrop – lower rates encourage people to borrow and spend more, and save less.

Monique Wong, Head of Multi Asset Portfolios at Coutts, the bank that manages the Royal Bank funds, says: “Stock markets are currently in strong form, reflecting the health of the economic backdrop. Inflation is still edging lower, despite the odd bump along the way, which is supportive of the major central banks – notably the US – starting to cut rates toward the summer.”

While inflation is ticking towards most central banks’ target of 2%, there’s still a chance it could bounce back again – we’ve already seen a few surprises in recent months. And any developments on this will play a part in the number of interest rate cuts we see this year. Since the start of the year, the market has scaled back expectations of seven US interest rate cuts to two or three by the end of 2024.

Monique says: “The current stock market rally means our overweight position in equities has bolstered our performance. Share prices are high but our dynamic investment process leads us to lean into the improving economy backdrop. It also allows us to adapt to changing economic circumstances.”

When making investment decisions for our customers, our thought process is three-fold:

1.       We take risks where best rewarded. Any investment decision comes with an element of risk – even not taking risk could be seen as a risk. We have a framework to help ensure we take ‘good’ risks, which are those with a high probability of a successful outcome.

2.       Protection – We want to make sure we have some protection in portfolios. That’s why we diversify our investments to try to pre-emptively manage losses within acceptable limits.

3.       We look to exploit sudden market shifts. Markets can act in mysterious ways, and stressed conditions can sometimes present the best opportunities. We need to be ready to take advantage of that.

This takes form in our investment process: ‘Anchor and Cycle’.

Anchor – A priority of ours involves getting the big asset allocation decisions right and focusing on five-year time horizons. It’s about our long-term themes and appreciating that, while short-run market movements are important, it’s the long game that really matters.

Cycle – This is about where we are now in the business cycle, the current market mood and the policies coming out of governments and central banks. It involves looking at the macroeconomic environment today and making tactical moves to make the most of it.

Here you’ll find our previous investment market updates.