Beechwood Financial Management Ltd.

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15/06/2022

Another excellent market update and summary from Quilter Cheviot. Thanks Mark Hendricks.
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Latest market update

A new cyclical high for US inflation soured investor sentiment last week, with selling in global equity markets accelerating into the weekend and the MSCI All Country World Index ending more than 4% lower and posting its worst weekly decline since October 2020.

US consumer price growth accelerated in May as the annual inflation rate rose to 8.6%, the highest level since December 1981. The headline reading increased from 8.3% in April, the level the consensus forecast was looking for again this time and surpassed the previous cycle peak of 8.5% in March. The concern for markets is not so much that this metric will continue to rise significantly, rather the worry lies in that it appears increasingly likely that price pressures won’t return to more acceptable levels as swiftly as many had hoped. Further supporting this notion was the core inflation reading, which strips out food and energy, climbing to 6% and topping consensus estimates.

The acceleration in inflation keeps the pressure on the US Federal Reserve which is currently holding a two-day meeting with their announcement on interest rate policy due tomorrow evening. Markets had been expecting another 0.50% hike at this meeting for much of the last six weeks, but the risks are now growing of a more hawkish surprise with support for a 0.75% move gaining traction. Despite some strength in the early part of last week, US large cap stock indices ended around 5% lower, taking the year-to-date decline to just shy of 18%.

Tech-focused indices were hit harder than the broad market as rising rates weigh on the allure of companies that are not expected to generate sizable earnings for the foreseeable future. Value stocks held up better than growth shares and small-caps outperformed large-caps, though overall they were also lower on the week. US Treasury yields increased with the 10-year bond rising 0.22% to end the week at 3.16%.

British Prime Minister Boris Johnson survived a confidence vote from the Conservative Party, but the relatively narrow winning margin leaves his authority badly damaged. 148, or 41%, of Johnson’s MPs in the ballot voted to oust him, more than the 37% who voted against his predecessor Theresa May in 2018 – six months before she was forced to resign.

Large-cap UK stocks were caught up in the broader market selling, but as has been the case for much of 2022, they outperformed their US and European peers, declining around 2.8% on the week. The pound also slid lower, with the GBP/USD exchange rate ending near $1.23, a loss of a little more than 1% for the week. Government bond yields gained a substantial amount, with the 10-year gilt yield jumping 0.30% to 2.45%.

European stock benchmarks performed similarly to their US counterparts, as large-cap indices declined almost 5%. The European Central Bank (ECB) signalled at its latest policy meeting that it will shortly begin to raise rates, suggesting a 0.25% increase at next month’s meeting. The ECB also confirmed it will end net asset purchases on 1st July.

The ECB lowered its economic growth outlook to 2.8% for the current year, down from 3.7% previously, and raised its inflation forecast to 6.8% for 2022. The inflation projections now have inflation remaining above its 2% target over the three-year forecast period and is now expected to only drop to 2.1% in 2024.

Core eurozone government bond yields rose following the meeting and the German 10-year bund (gilt equivalent) ended the week yielding 1.51%, up from 1.27%. Uncertainty caused by the Ukraine conflict and weaker demand saw German industrial orders fall for a third consecutive month in April.
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When global markets are down by 9%-18% year to date, for Beechwood's portfolios to only be down by 5%-9% is a relatively good performance, but no one likes losing money, especially not me.

Hang in there, it will get better if we stay invested for the medium to long-term and have faith in the good fund managers in our portfolios.

18/05/2022

I've just had this great market update from Mark Hendrick at Quilter Cheviot and wanted to share it with you all. Thanks Mark.

Inflation remains at the forefront of investors’ minds and although the latest US data showed a drop, the pullback was smaller than expected. Bond markets arrested their recent declines last week, but it was another negative week for stocks with the MSCI World Index losing over 2% for its sixth consecutive week of declines – though there was a decent bounce off the lows with a sizable rally on Friday.

Headline US inflation rose 8.3% year-on-year to April, down from 8.5% in March but, perhaps more importantly, above the 8.1% consensus forecast. It was a similar story for the core reading (excluding food and energy) which also pulled back less than expected, coming in at 6.2% versus a forecast of 6.0%. While a near term peak may be in place, the data suggests that prices could well prove sticky, remaining well above central bank targets for longer than hoped for. This added to growing scepticism the US central bank can achieve a “soft landing” by managing to curb inflation without causing a recession. The volatility following the inflation data release served as a further reminder as to how highly attuned markets are to inflation at present, but once the dust settled stocks were lower and bonds higher – both indicative of slowing growth going forward.

Although the macroeconomic environment in the US has deteriorated substantially in recent months, it is faring far better than the UK where growth has ground to a halt and inflation is expected to continue rising. Last week’s release showed UK gross domestic product (GDP) declined 0.1% between February and March, following on from zero growth in the previous month. The latest growth figures come at a time when inflation is running at its highest level in decades at 9.0% (as per the latest data release this morning). The Bank of England forecast inflation could hit double digits in the second half of the year and, with further policy tightening in the pipeline, the outlook is far from sanguine, with the spectre of a prolonged period of stagflation looming large.

The UK GDP data did little to help sterling, with the pound extending its decline against the US dollar to four weeks in a row. During this period the currency pair has fallen from above the $1.30 level to the low $1.20s. UK large-cap stocks managed to post a small gain on the week, aided by the currency depreciation, and extend a run of outperformance against the US equivalent. While the UK market moved further into positive territory for the year the declines in the US stock market deepened and Thursday’s low was within touching distance of a 20% decline from the peak made on 3rd January, close to satisfying the most common definition of a bear market. European shares enjoyed a good week, snapping a losing streak to finish with solid gains led by German and Italian bourses.

05/04/2022

Just had a very good market update from Mark Hendricks at Quilter Cheviot and thought I'd share it with you all.

Last Thursday heralded the end of the first quarter of 2022 and quite a tumultuous one it was for investors. Rising inflation and hawkish commentary from central banks about the future path of interest rates was overlaid by the Russian invasion of Ukraine, which is now in its sixth week. These conspired to push global stock and bond markets down, although share prices bounced towards the end of March, recovering some of the earlier lost ground. Most equity markets delivered a negative return although the UK large company index was bolstered by higher share prices of oil and mining companies. Oil prices as measured by Brent crude rose by nearly 35% over the period. High growth and technology shares bore the brunt of the weakness, with higher bond yields pushing down valuations. Central banks in the UK and US raised interest rates and seem likely to continue to do so over the balance of the year.
Commentators have looked at previous rate tightening cycles to assess the risks of possible recession should central banks raise rates too far. At this stage it is too early to tell but policy makers are aware of mistakes made in the past and will pay close attention to the economic data as it evolves over coming months. Most developed economies are still benefiting from the strong stimulus measures introduced during the early stages of Covid and employment remains strong. It should therefore be possible to rein in excess demand without pushing economies into recession; the so-called ‘soft landing’ scenario. Of course, an economy is a complex system and behaviours are difficult to predict so this may prove to be wishful thinking. Against this background company balance sheets are strong, and profitability remains high. Clearly some companies will be more impacted than others in terms of dealing with higher input costs and their ability to pass these on to customers. The upcoming quarterly results season should provide greater evidence of how companies are adapting to these conditions.

Many thanks Mark.

01/02/2022

Latest market update from Quilter Cheviot.

Volatility continues to be a feature of markets and last week was no stranger to that. Eagerly anticipated was the latest meeting of the US central bank, the Federal Reserve, to determine any changes to monetary policy. The meeting itself produced little in the way of new information. However, in the subsequent press conference Fed Chairman Jay Powell talked more forcefully about the need to raise interest rates soon. The market is now pricing in five quarter point interest rate rises for 2022, compared with a pre-Christmas forecast of three hikes. US GDP grew by 6.9% annualised in the fourth quarter of last year and inflation is running at 7% (although the Fed’s preferred indicator of inflation is cantering at a less frenetic pace of 4.9%). The Fed is clearly intent on getting more on the “front foot” about targeting inflation, as strong demand in the economy continues to meet supply constraints, putting more upward pressure on prices.

The US results season is now well underway, with roughly one-third of companies already reporting. Aggregate earnings are up 24% year on year, slightly ahead of forecasts. An impressive 77% of companies have beaten consensus earnings numbers, but this is below the levels of the previous four quarters. More important have been company outlook statements, and a common theme across a variety of sectors is that demand is strong, but supply chain issues remain a problem. Meanwhile, more companies are having to deal with higher input prices with varying ability to pass these on to customers. Some very good businesses have seen their share prices hit in what has been another period of sharp market rotation. As ever, this provides attractive buying opportunities for longer-term investors.

21/01/2022

After another busy week on the markets, I have just had another great market update from Mark at Quilter Cheviot, the Discretionary Fund Managers that i use for some clients, and I thought I should share it with you all. So here it is.

We are seeing some sharp declines in most of the major indices, with the US S&P 500 index down 4% over the past week and more modest falls of between 1% to 2% this week across the UK and most Continental European markets as I write this note.
Share prices of even the mega-cap US technology companies have moved lower in recent weeks, with Facebook (now known as Meta Platforms) and Apple both down 5% over the past month to close of business last night. Amazon shares are down 11% and Google (Alphabet) shares have fallen 7% over this same period.
Why is this happening?
Paradoxically, it is good news which is triggering these negative stock market movements. Our successful battle against the Covid-19 pandemic with a range of excellent vaccines and new anti-viral drugs, coupled with the realisation that the Omicron variant has not derailed things as much as some had feared, is leading investors to think about a return to normal for the global economy. The downside of this is that a normal economic environment does not include ultra-low interest rates forever and these low rates have supported stock markets in recent years with the cost of borrowing almost at zero.
This normalization process started in early November 2021 when the US Federal Reserve announced it would begin to withdraw its massive stimulus program over the next several months and the planned pace of this withdrawal was further increased when they met again in mid-December 2021.
Inflation in the US is now running at 7.0% and investors are expecting as many as four interest rate hikes this year which would take the US base rate from 0.25% to 1.25% by the end of 2022.
Here in the UK inflation is now at 5.4% and futures markets are pricing in a 100% probability that the Bank of England’s Monetary Policy Committee will increase our base rate from 0.25% to 0.50% when they meet in February. They lifted the base rate from 0.10% to 0.25% only a few weeks ago in December 2021.
Higher inflation and interest rates tend to hurt share prices because a company’s share price reflects anticipated profits stretching well into the future over 3, 5, 10 years or longer and those future profits are worth less in today’s money when interest rates are rising (the same principle as inflation eroding the “buying power” of money over time).
In summary, the volatility we are now seeing across global stock markets reflects the fact that investors are adjusting to the likelihood that this recent period of ultra-low interest rates might perhaps be over and, for now, nobody really knows what this will mean for company earnings and, in turn, for share prices.
In times of market volatility, we need to remember that stock markets always fluctuate up and down rather than moving upwards in a straight line. Early in the pandemic we saw the UK market fall 24% peak-to-trough between January 2020 and March 2020 before then moving higher. History shows that investors who stay the course and ride the various ups and downs almost invariably outperform those who try to “time the market” by selling out in a panic and then attempting to buy back in again later.

18/01/2022

Just had the following market update in from Mark Hendricks at Quilter Cheviot DFMs and thought it summarised what's happening well. Thanks Mark.

We have seen the domestic UK stock market outperform many overseas markets in recent weeks, notably since investors began to anticipate interest rate hikes as the Covid-19 threat appears to recede and the global economy reopens.

All else equal, higher interest rates tend to favour sectors such as financial companies which can increase their loan margins whilst a resurgent economy clearly benefits the energy, mining and other resources sectors. Crude oil is already up 12% since the beginning of this month to trade at $86.

Conversely, higher interest rates are not so helpful to sectors where the underlying companies make very little profits (or no profits) and / or where share prices are more closely linked to anticipated future growth, most obviously the technology sector.

The UK stock market has lots of banks and energy companies but very little exposure to technology whereas the latter sector represents somewhere close to 30% of the entire US index. The NASDAQ index is down 7% in January by way of example.

Global equity markets continued to gyrate last week as investors tried to balance the development of Covid-19 and the changing expectations of central bank policy. Although transmission rates of the Omicron variant are much higher than previous iterations, there is a growing feeling that it is potentially less deadly. We have seen restrictions reimposed in some countries, especially Continental Europe and parts of Asia, but there is optimism that the social and economic damage of previous lockdowns will not be repeated. As a result, money has flowed back into the “reopening” sectors such as airlines, hospitality and leisure.

At the same time, central banks, especially the US Federal Reserve, have signalled that they will start to tighten monetary policy this year to temper rising inflation expectations. This will take the form of an ending to bond purchases and an increase in interest rates plus, in the case of the US, a reduction in the size of the central bank balance sheet (allowing existing bond positions to mature / expire). Markets are now pricing in potentially four rate rises in the US during 2022. Policy tightening is not expected to be as hawkish in the UK and Eurozone, but bond yields have been rising globally. The more aggressive pivot by the US saw 10-year Treasury yields rise from 1.5% to 1.8% in the first week of 2022. They have since stabilised around the higher level. Rising yields have led to some profit, taking in the “growthier” end of the market, particularly technology. The corporate results season is now upon us and arguably the most important input to inform decision making will be shared, notably how companies themselves are performing in this environment and what they are anticipating in the months to come.

23/12/2021

Well, it’s now the 23rd of December, so I’m finishing at 1pm today and taking a break over Christmas. If you have something urgent, please e-mail or call me as I expect that I’ll still check my e-mails every few days.
I’ll be back in the office on Tuesday 4th January 2022, so if it’s not urgent, I’ll be in touch then.

MERRY CHRISTMAS EVERYONE.

07/12/2021

I've just had this Update on Markets from Quilter Cheviot DFMs and thought I'd share it as I think it addresses the issues most people are concerned about at the moment - Covid, inflation and interest rates.

Latest market update from Quilter Cheviot.

Global equity markets continued their volatile ride last week as the scientific community grappled with the potential consequences of the new Omicron strain of coronavirus. Although data from South Africa suggests that sufferers are demonstrating relatively mild symptoms, it is really too soon to tell how fast this variant will spread and how resistant it is to existing vaccines. In the UK and the rest of Europe, Delta remains the dominant form of coronavirus and is likely to remain so for the next month or so even if Omicron starts to take hold. Rising cases have resulted in lockdowns in Austria and Germany, which for those who have experienced the joys of Christmas markets in those countries, is a serious blow.

Having maintained a fairly dovish profile, with regard to the future path of monetary policy, the Federal Reserve Chair Jay Powell changed tack last week. Recently the central bank outlined its plan to reduce the pace of bond purchasing. This tapering would see the programme wound down by the middle of next year. However, it would appear that Powell is now more concerned about inflationary pressures taking hold to the extent that the Fed will no longer describe inflation as “transitory.” At a meeting last week, he suggested that tapering might have to be accelerated, implying earlier than expected interest rate rises. Meanwhile the Bank of England seems to be moving in the other direction, with strong hints that this month’s expected rate increase will be delayed into the New Year. As ever, central banks seem to be changing their minds on a frequent basis, which questions whether they should communicate with the market ahead of policy meetings at all.

30/11/2021

Do you need to worry about a Lifetime Allowance (LTA) charge on your pension?

The LTA currently stands at £1,073,100 and is now frozen until April 2026.

You might think “I’m nowhere near that level, so I’ll be OK” but if it stays frozen beyond 2026, or even reduces further (which has been suggested), it could be more of a problem.

Imagine that you currently have pensions totalling £659,000 and still have 10 years to retirement. If your IFA can achieve 5% growth per annum, you will reach the LTA at retirement.

If you have 15, 20 or even 30 years to go to retirement, that figure comes down to £520,000, £410,000 or even £250,000.

There are things that you can do about the problem and sometimes it’s worth paying the tax, but everyone’s circumstances are different, which is why you need personal, individual proper advice.

For an initial discussion about your pensions, message me.

08/11/2021

With the focus of most of the world on the COP26 conference in Glasgow again this week, I have 2 questions to ask you?

1). What are you going to do differently going forward to reduce your carbon footprint?

2). What would you like to see Beechwood doing going forward to reduce OUR carbon footprint?

The first is rhetorical and is between you and your conscious.

The second question I would genuinely like your thoughts on.

Thanks.

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