Latest investment update

Published: June 2024

The global outlook for stock markets stays upbeat after strong company performance, while bonds battle with interest rate expectations.

Good news continued to roll out for investors last month as solid company earnings meant stocks performed positively.

At various points throughout the year, companies report how they performed over the previous three months – a period commonly known as ‘earnings season’. The big US technology giants announced impressive numbers yet again during this last round of announcements, but we also saw other industries and regions boasting a strong three-month period.

And this had a broad-based, positive impact on stock markets.

Inflation remains at the back of investors’ minds. It continued to edge lower in the UK last month, but US inflation remains sticky at around 3%-3.5%. Generally, inflation is still above most central banks’ 2% target. This is likely to delay interest rate cuts, but investors remain hopeful that such a cut will still come this year. 

It was also a positive month for bonds, but they went through more of a bumpy ride compared to stock markets because of the interest rate uncertainty.

The European Central Bank was one of the first major central banks to cut interest rates at the beginning of June. This was good news. But it still begs the question: when will other central banks do the same thing?

The central bank committees which decide on what to do with interest rates are themselves divided on next steps.  This makes trying to predict the exact timing of rate cuts extremely difficult. And as bond prices are so dependent on interest rates, we’ve seen some volatility there. However, compared to a few years ago, government bonds are providing supportive yields, creating something of a ‘yield cushion’ against this uncertainty. 

We hold high yield bonds within our funds which perform well when the economy is healthy. A high yield bond is corporate debt, and is therefore linked to the performance of the company as well as interest rate movements. These bonds are providing even stronger yields currently, again providing a yield cushion against current interest rate uncertainty. These strong yields also help balance out the risk that comes with high yield bonds of the company missing a repayment (also known as a default).

Something that has dominated newspaper headlines, but not necessarily financial markets, was Prime Minister Rishi Sunak’s announcement that there would be a snap election in July. Political elections can sometimes cause knee-jerk reaction in markets, but typically investors focus more on economic data, such as the health of the global economy and potential implications for interest rate policy.

Monique Wong, Head of Multi-Asset Portfolio Management at Coutts, the team behind Royal Bank Invest, said: “The announcement from Downing Street had minimal impact on markets, because the event – if not the timing – was largely expected. Instead, investors focus more on the fundamental data such as company earnings, inflation and interest rate announcements.

“An election campaign could cause some noise for markets. However, our empirical work shows that elections, by and large, don’t tend to have a lasting impact on markets.”

Here you’ll find our previous investment market updates.