With the S&P 500 hitting an all time high last week capping off a stellar six month period for the index, it does leave many wondering will the bull run continue.

In 2023, 62% of the S&P 500’s 26.29% total return was produced by what are referred to as “The Magnificent Seven” stocks – Amazon, Alphabet (Google), Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla. That is a very small band of stocks doing a gargantuan amount of heavy lifting. Whilst the largest of these stocks have a higher market cap than the GDP of the vast majority of countries, they still continue to add significant chunks of value to their share price. Most Western governments would give up most of their castles and national parks to have even a tenth of the levels of growth these companies can have in a year!

With a US election looming and the state of the economy inevitably linked to a Presidents electoral performance, I would think Biden and his team will do everything they can to continue the strong economic performance of 2023 and bring that momentum to November 2024.

My personal view is there will be a continuation of growth in the magnificent seven although not as strong as 2023. Historically, all-time highs follow more all-time highs. The S&P 500 averages a total return of 10.9% over the next year so whilst history can’t predict the future it is certainly a solid indicator.

Unless you have been hidden in the Amazon rain forest, or perhaps achieved Elon Musk’s dream of building a colony on Mars, you can’t have failed to notice the rapid rise in interest rates over the last 18 months. With inflation raging like a toddler after a bad nights sleep, hiking interest rates was the most logical thing to do to try to get inflation back to a tolerable level.

Whilst his has been a hammer blow to mortgage holders it has been very handy for those with cash in the bank. Having had effectively no interest paid on savings since the great financial crash of 2008 it has been quite a good period for those with a healthy balance in a high interest savings account.

In terms of where it will all end, the consensus among the interest rate analysts is that they will start to come down sometime in the fourth quarter of this year. This will of course give mortgage holders a break from often cripplingly high monthly payments but will also means those with large cash balances will need to put their money to work elsewhere.

My personal view is that we are unlikely to see rates go down to near zero any time soon, or perhaps ever again. Whilst it was fantastic to be able to borrow money at a cost of next to nothing the longer term consequences of this has seen house prices sky rocket in the last decade leaving those without a deposit, or a helping hand from the bank of Mum and Dad, unable to get on the property ladder.

In short, if you are currently holding a mortgage with a high monthly payment, the pain should become more bearable sooner rather than later. Conversely if you have been enjoying a 5%+ per annum return from the safety of cash investments I think it makes a lot of sense to start planning to invest elsewhere as the free flowing 5% is likely to become more of a 2% trickle before too long.

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With an election inevitably on the horizon and with that a likely change of government it is essential for people to make the most of the generous (in my opinion!) annual pension allowance available to them.

Jeremy Hunt surprised many in the pensions world by getting rid of the lifetime allowance altogether and upping the maximum annual pension contribution to £60,000 in the budget of last year. This change was very much unexpected and unsurprisingly wasn’t met with applause from the Labour party. A seeming pensions giveaway to those who already have the ability to have a large pension!

With a Labour election victory seeming very likely in the coming 12 months or so it is essential for anyone who has the ability to to make the most of these pension allowances whilst they are available.

Whilst it may not be top of Keir Starmer’s list of things to do should he take the keys to Number 10, it does seem very likely that lifetime allowance rules will be changed and the annual allowance reduced to previous or perhaps even lower levels.

With that in mind and with only a little over 10 weeks until the new tax year I would implore people to take advantage of the allowances whilst they can as by April 6th 2025 I very much doubt they will still be there.

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Great article below from AJ Bell –

The UK’s private sector expansion was stronger than anticipated at the start of 2024, preliminary data suggested on Wednesday, though the Red Sea crisis is showing early signs of reigniting inflationary pressures.

The S&P Global flash composite purchasing managers’ index rose to a seven-month high of 52.5 points in January, from 52.1 in December. Rising further about the 50-point no-change mark, it shows the pace of expansion sped up slightly. The reading was higher than FXStreet-cited market consensus of 52.2.

The expansion was solely down to growth within the services sector, as the services flash PMI rose to an eight-month high of 53.8 from 53.4, and came above FXStreet-cited market consensus of 53.2.

Manufacturing remained in sub-50 contraction territory with a flash PMI of 47.3, though the reading was nine-month high, and above 46.2 the prior month. However, production fell at the fastest pace since last October, amid weak order books and overstocked customers.

‘The latest survey also indicated a return of modest private sector employment growth at the start of 2024, supported by improving demand conditions and higher levels of optimism towards the business outlook,’ S&P Global said.

However, private sector firms saw the sharpest rise in input costs since last August, led by cost pressures within UK factories. Firms often remarked on higher freight costs stemming from the Red Sea crisis, while associated shipping delays caused suppliers’ delivery times to extend for the first time in a year. It was also the greatest rise in delivery times since September 2022.

Service providers also noted a steep rise in input costs, stemming from rising wages. However, the rise was the weakest in three months, leading to a softer rise in output pricing. Overall, prices increased at the weakest pace since last October.

‘The survey data point to the economy growing at a quarterly rate of 0.2% after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum,’ said Chris Williamson, chief business economist at S&P Global Market Intelligence.

‘Businesses have also become more optimistic about the year ahead, with confidence rebounding to its highest since last May. Business activity and confidence are being in part driven by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates,’ he added.

However, Williamson commented that January’s more-robust-than-expected growth could deter the Bank of England from cutting interest rates as soon as many are expecting. The BoE will also be paying attention to the inflationary pressures stemming from the Red Sea crisis, he added.

‘The longer journey times lifting factory costs at a time of still-elevated price pressures in the service sector. Inflation is therefore indicated to remain stubbornly higher in the 3-4% range in the near future,’ Williamson concluded.

The flash PMIs are compiled by S&P Global from responses to surveys sent out to around 650 manufacturers and 650 service providers in the UK. Responses are collected in the second half of the month.