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Client Update - 5th January 2024

A very happy New Year to you.  I hope you had a relaxing and enjoyable time over the Christmas break. The festive season is always a chance to remind ourselves of the important things in life, a time to spend with friends, family and loved ones. However, the investor in me always tries to carve out a little time to think about the year ahead and the events that are most likely to shape the investment landscape over the coming 12 months. Perhaps this year it was a little more time than normal.

2024 will certainly be a year of significant political change. In the UK we will have a general election. You may have seen some news flow over the break about a significant spring budget and many potential tax cuts on the table. All of this is pointing political commentators to speculate on an early snap election, despite this being denied by the Prime Minister this week. In the United States we know when the election will be, we are just not exactly sure who will be running. The republican frontrunner Donald Trump continues to be hit with lawsuits and refuses to attend primary nomination debates as he conducts his own personal rallies. It is working for Trump as his polling numbers continue to go up even as he boycotts the debates. Things are also less certain on the democratic side where traditionally a sitting president automatically receives the nomination. There are growing views from both sides of the political spectrum that Joe Biden may not be physically or mentally capable for a second term in office. This might have as much to do with the fact that most analysts expect him to lose to Trump in a two-horse race. Could there be a last-minute super candidate parachuted in that could take the White House for the Democrats? This will of course have significant implications for financial markets both at home and abroad.

We also face a world of increasing geopolitical challenges. The situation in Israel has certainly become a significant war, but thankfully has not escalated into a regional conflict. As we have seen time and time again, it is best not to be too complacent on the impact spreading from this part of the world. Alongside this the conflict in Ukraine continues and this potentially poses more significant instability as the final outcome may have less to do with the exhaustion of the opposing armies, and more to do with the ongoing commitment of the West to support the Ukrainian regime. Add to this the increasing tensions between China and the Western powers, and we have a less stable world than we have been used to in the recent past.

Financial markets will also have to absorb a complex economic landscape which is likely to be fast changing. A picture of falling growth and inflation is set against investors expectations of significant expansion in certain areas of the economy. Nowhere is this more obvious than in the so-called magnificent seven tech stocks that have exposure to the Artificial Intelligence euphoria. The performance of these stocks (which represented almost 75% of the investment returns of the S&P 500 last year), may face a ‘show me the money’ moment. Investors, which have gladly expanded the price they were willing to pay today for tomorrow’s earnings, now have high expectations. Investors patience is not unlimited and the current sky-high valuations in these stocks will need to be satisfied with explosive growth at some point in the future.

And there will be unexpected developments as well. Let us take the example of the electric vehicle (EV) market. When you think of the dominant player of course Tesla will spring to mind. Tesla did indeed have a strong 2023 and delivered a record number of EVs in the fourth quarter. Tesla's 484,507 EV deliveries in the final quarter fell short of Chinese rival BYD's 526,409 vehicles. BYD has a higher profit margin than Tesla as well. This shift indicates a broader market trend where consumers, perhaps influenced by a higher-interest-rate economy, may be increasingly reaching for value. Value is also a theme in our investment portfolios that, relative to broader markets, have had a very good first week of 2024.

I have no doubt that 2024 will bring many surprises and challenges that are not on investors’ minds right now. This will of course bring attractive opportunities to generate investment returns. There is a certain comfort in the fact that 2024 is no different to any other year in my career. There will be ups and downs, highs and lows, and as always, a few things that no one expected.

What is constant is that our team will be working hard, day in day out, to maximise the opportunities and help you reach your financial goals. And with that I would like to wish you a safe, successful, and prosperous 2024. Do have a good weekend (and year ahead).

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