Nutmeg investor update: October 2024

September was a significant month for central bank announcements. Two of the biggest hitters - the US Federal Reserve and the People's Bank of China - each made policy changes that made headlines, although for very different reasons. For the most part, investors reacted positively.

Most major equity markets rose this month, and investors seemed happy to take on a little more risk.

What happened in financial markets in September?

Most equity markets rose. The UK’s FTSE 100 fell slightly, most likely due to a stronger pound sterling over the month. This can act as a headwind against companies that earn most of their revenues overseas, as is the case with the FTSE 100. The FTSE 250 – the UK’s more domestically focused equity index, was slightly stronger.

Performance was more robust in the US, where both the S&P500 and the more tech-centric NASDAQ gained ground. Equities in the eurozone also finished the month higher.

More dramatic were the movements in Chinese equities. Having struggled to make headway since the middle of the year, the Chinese stock market rallied very strongly on a surge of investor optimism this month.

In bond markets, there wasn’t a huge amount of movement in the prices of UK government debt, or ‘gilts’. Inflation-linked government debt prices did fall slightly. Overall, bonds issued by companies, which are a bit higher on the risk spectrum, performed more strongly in both Europe and the US.

The Federal Reserve shifts its focus from inflation to growth

Central banks play such an important role in keeping their economies in good shape that investors spend a lot of time trying to predict what they will do next. This month, the central banks of the world’s two largest economies made significant announcements; the US and China.

Starting with the US, the Federal Reserve - or simply "the Fed" - has been trying to contain inflation in the US economy since the start of 2022. The Fed has a few tools to do this, but interest rates are one of the most powerful. By increasing (or tightening) rates to their highest level since 2007, inflation has indeed come down a long way and is now close to where the Fed wants it. The downside of higher interest rates is that they can stifle economic growth.

In September, the Fed was happy enough to cut rates for the first time in four years, and by 0.5%; a bigger move than its usual 0.25%. Investors saw it as good news, which was reflected by the market movements. Expectations are for the Fed to continue cutting rates steadily.

It's important to say that there are still elements of the US economy that the Fed will be watching carefully. Containing inflation and keeping it steady is a delicate task.

Some contributors to the overall inflation figure – specifically wage inflation – remain higher than is ideal. Even so, this is partially offset by stable and growing productivity, so we think the steady pace of rate cuts will continue for now. In general, the economy overall looks to be in good shape.

China is pulling out all the stops

The Fed’s decision was well received by the market, but also not a huge surprise. The People's Bank of China (PBoC), conversely, announced a series of surprisingly aggressive policy changes, in a bid to reverse the economy’s persistent slowdown.  Chinese equities rallied sharply following the news.

The measures included interest rate and mortgage rate cuts, and financing assistance for the ailing property market. Some restrictions on property purchases are also being removed. In addition, the Chinese government announced measures aimed at supporting the equity market. Time will tell if these various policy measures will improve economic performance enough to reach China's growth targets. The Nutmeg investment team aren’t convinced, not yet anyway. To see sustained strength in domestic demand, we feel more is needed.

What did the investment team do?

The investment team didn't change portfolio allocation over the month. Our positive outlook for economic growth means we have retained our bias towards equities. We also think that technological change is playing an important role in how economies and equities behave. And we are positioned for this trend by being over-allocated to US technology stocks. 

Thanks for watching. If you have any questions or suggestions for a topic you’d like us to discuss in next month’s investor update, you can contact us via social media, email or in the comments section below this video. 

The Nutmeg investor update is also available as a podcast. Listen to this month's update below.

About this update: This update was recorded on October 8, 2024. All figures, unless otherwise stated, relate to the month of September, 2024.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance.  We do not provide investment advice in this update. Always do your own research.