The value of investments can fall as well as rise, and you may not get back the full amount you invest. Past performance should not be taken as a guide to future performance. Eligibility criteria, fees and charges apply. You should continue to hold cash for your short-term needs.
Price hikes settle
Factors that caused soaring prices in 2022 have been phased out of the ecosystem. Supply chain bottlenecks, labour shortages and price shocks are no longer a big concern for businesses.
Inflation has now been falling towards central banks’ target of 2% – although it’s lost some of its pace in the past few months. But this leaves central banks in a dominant position to cut interest rates once inflation reaches targets, or if the economy begins to suffer.
The European Central Bank was one of the first to cut rates in 2024 – by 0.25% in June. The Bank of England and US Federal Reserve are still to take any action but are expected to make their first cuts in the second half of the year.
Economic impact of political elections
Some key events to watch out for this year are the political elections being held in the largest economies in the world. This could be critical for international relations and their own economies.
While elections are important and can cause short-term volatility, they don’t impact the performance of stock markets over the long term. For the past 100 years, the average return of the US stock markets is only slightly better in a non-election year. The main things investors focus on are the key factors such as interest rates, inflation and company earnings.
Green investments on the up
In the US, there has been some political disagreements on the term environmental, social and governance (ESG) within investing – what it actually means, and does it have an impact? But regardless of this dispute, investments in green strategies are on the up.
The Inflation Reduction Act was introduced in 2022, which pledged to invest $400bn of federal funding into clean energy and tackle climate change. This has got support from the two leading parties competing in the upcoming US election, the Democrats and the Republicans.
Strong performance from US tech sector
We‘ve mentioned throughout this report how important company earnings are on the performance of financial markets – it’s worth explaining what and why this is. After every quarter, typically companies announce how their businesses have performed for the last three months. This helps tell investors if they’ve made the right decision to choose to invest (or not) in them.
One of the top performing sectors so far this year is technology, driven by just a handful of tech giants which the industry has recognised as the ‘Magnificent 7’. Made up of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla, this small group of stocks has been the key contributor to the US stock markets’ strong performance and earnings growth in the first half of the year.
What’s driven their success? Artificial intelligence (AI).
Tech dominance and the AI boom
The buzzword of the year has been AI. Tech giants are either getting investors excited about the future of their businesses because of the massive surge in adopting AI (which they offer services in) or they’ve optimised their businesses by implementing AI both quickly and efficiently.
However, the technology sector’s dominance might not last forever. The rest of the US market is expected to catch up which could see the size of the group of market leaders grow.
The communications and technology sectors are the top two best returners so far this year. Third on the list is utilities – energy and other similar service providers – which has been a surprise. These companies have also benefited from the AI boom off the back of the growing data centre industry.