The world economy remains resilient and still supports investing despite Monday’s market volatility.

Stock markets fell after US job numbers released on Friday raised concerns about an economic slow-down.

But the experts at Coutts bank behind our investment offering still see “resilient economic fundamentals” and no signs of major shifts in the US economy.

Lilian Chovin from Coutts’ investment team says, “There appear to be few fundamental reasons for the falls we’ve seen. The US economy is slowing but continues to grow, companies are still reporting solid profits and the chance of an imminent recession is extremely low.

“We still see resilient economic fundamentals and little deterioration in them. The economy is weakening in the US, but that doesn’t mean it’s weak. And as such, conditions remain positive for stocks generally.”

The value of investments, and the income from them, can go down as well as up and you may not receive the amount of your original investment. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs.

Official US employment numbers released last Friday (2 August) showed the unemployment rate rise to 4.3% and jobs growth come in lower than expected, with 114,000 new jobs in July versus market expectations of 175,000.

These numbers triggered what investors call the ‘Sahm rule’ – a statistical measure of when we might see a recession. But crucially, it came into play for a very different, far less negative reason than usual.

Lilian explains, “The Sahm rule is usually triggered by layoffs, people losing their jobs and spending less money, which slows economic growth. But this time around unemployment has risen because there are more people in the US looking for work, partly because of immigration, and therefore considered unemployed.

“So while the US economy is certainly slowing and the jobs market is getting a bit weaker, the Sahm rule has been triggered for a far less sinister reason than usual.”

The recent volatility is not just about what’s happening in the US. Over in Asia, the strength of the Japanese yen over the past few weeks led to a popular currency ‘carry trade’ unravelling – typically, a low-yielding currency funds such a trade in a higher-yielding currency to benefit from the difference in rates.

This has caused a lot of disruption in markets, but it’s more of a technical development rather than something fundamental to the overall economy. 

Much more importantly for investors, higher unemployment and slower economic growth in the US mean its central bank – the US Federal Reserve – is now much more likely to cut interest rates in September. They may also cut them by more than previously expected – 0.5% instead of 0.25%.

This could lower companies’ borrowing costs while encouraging people to spend rather than save, which could all be good for share prices.

The Bank of England already cut interest rates for the first time in four years last month, from 5.25% to 5%, and several other central banks around the world have done the same.

The Coutts' team had already seen that the US jobs market was starting to weaken, but they could also see that underlying economic conditions remained solid. So they still prefer investing in stocks, and recently positioned their holdings so they were more globally focused.

They also bought more US government bonds at good prices, which should benefit from tamer inflation and strong chances of interest rate cuts.

Other recent changes to their funds and portfolios include taking profits and closing their investments in gold and high yield bonds. Both positions had done very well and served their purpose, with gold in particular performing better than expected.

Please contact your Premier team if you would like to discuss any of this or your investments with us in more detail.