News & Views

Quick Update from Jeff Lewis

11th August 2021

Jeff Lewis, director of Edinburgh based IFA RobMac, continues with his regular insights and observations of the markets as the major economies look to life beyond COVID and returning to normal.

Jeff Lewis, director at RobMac


The US economy

There is strong employment data out of the US with almost 1 million new jobs, a fall in unemployment, higher wages and a longer working week. It was strong across the board. That should have been no surprise: survey evidence has been saying that jobs are plentiful for months. The problem has been workers reluctant to take jobs, especially in less attractive areas.

That all shows that the US economy is booming. And it’s a similar story across developed markets. Lockdown restrictions are being eased, while consumers have money in their pockets and are spending freely. They have already stocked up on goods – or at last they have ordered them and are waiting for delivery – and the strength is now to be seen in services. Industrial production is still constrained by shortages of key inputs like semiconductors. Inventories are low so there is pent-up supply to come.

Central banks: beyond relief

There  is now a clear consensus that the US Federal Reserve (Fed) will announce a tapering of their bond purchases before year end but  that’s hardly aggressive: it just means that they’ll ease policy more slowly. The Fed and the Bank of England may look at Interest rate rises by the end of next year so we have a bit to go yet.

This is clearly bad news for bonds – yields rose in the UK and US last week but  is it bad news for equities where most investors have their growth assets , probably not . Inflation worries are there and set to increase – watch out for the US CPI this week – but these moves by central banks are in response to greater confidence in growth. The developed world has vaccinated most of their adult population and this has weakened the link between infection and serious illness. Health systems seem to be able to  cope, despite the Delta variant.

Equity market set to continue

More generally, equities typically do well in the run up to the first Fed rate hike, and for some time thereafter. If this pattern were to be repeated, the equity bull market could last through to the other side of summer and well in to 2022, and indeed beyond .

In general it’s  certainly better for long term returns to be invested than retain large amounts on cash deposits where Interest rates will continue to be low for a significant further period of time

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