Investment Insights - Hot Topics September
Welcome to Balance: Wealth Planning's Hot Topics!
Balance: Wealth Planning's September edition of Hot Topics.
Every month, our financial planners collate the latest 'Hot Topics' within the industry, to update you regularly as they are happening and cover any frequently asked questions you have.
So, without further ado, please enjoy this edition of Hot Topics!
Central Banks
This month marks pivotal changes in global markets, with both the Federal Reserve and the European Central Bank cutting interest rates in response to easing inflation. While conventional wisdom suggests that stocks tend to benefit from rate cuts, history reveals mixed results.
The chart below shows the drastically different market performance of the US Market Index in the year after a new rate-cutting cycle began. In the 12 months following the Federal Reserve 1995 rate-cutting cycle, this index rose 21%. However, returns were down more than 10% when the Fed began cutting rates in 2001 following the dot-com bubble bursting.
What does this mean for investors?
When central banks lower rates, it typically reduces borrowing costs, encouraging growth. However, market sentiment and external factors can drastically influence outcomes. Rate cuts are just one piece of the puzzle, and attempting to predict short-term stock movements is difficult. What we do know is that, historically, equities outperform bonds, bonds outperform cash, and cash barely keeps up with inflation over the long term. The takeaway? Long-term investors should stay patient amidst short-term market noise, as volatility remains the price for long-term returns.
Artificial Intelligence Investment and Tech Growth
In other news, BlackRock's recent partnership with Microsoft to launch a £30bn Artificial Intelligence infrastructure fund highlights the growing importance of A.I. in today's economy. While we don't directly invest in thematic funds, the development shows how A.I. is driving tech growth, contributing to BlackRock's record-breaking $10.6 trillion in assets under management—a $1.2 trillion increase year-over-year.
Looking ahead
As we move into October, attention shifts to two major events: the autumn budget in the U.K. and the U.S. presidential race. Both will have implications for investors as economic policy evolves.
Please note: This update is not financial advice and is provided for information only. You should not take any action before speaking to a Financial Planner, who will confirm what suits you.
Please feel free to share it with anyone who may be interested. If you have any questions, please get in touch with your usual contact or investments@balancewealth.uk.