We’re already halfway through yet another eventful year, and I wanted to take this opportunity to reflect on what’s happened and how we’d like to approach the second half of 2023, especially as it relates to your financial planning.
The world never seems to stop providing us with events and stories that keep us on our toes and sometimes, even to question human sanity. Sadly, it has always been thus and from an investing perspective certain key mantras of keep calm, keep things in perspective and stay the course, have never sounded truer than now. Are things more unpredictable now than in the past? I do not think so. The one predictable fact is there is very little in the world that is predictable.
The last six months have been eventful and filled with various developments in financial markets, geopolitical affairs, and societal changes. Here is a summary of the key points:
1. Market performance and patience:
Despite initial market volatility, those who stayed disciplined and stayed the course with their portfolios have generally been rewarded. Patience has proven to be a necessity in navigating market fluctuations and allowing investments to recover and potentially grow. Twelve months in and portfolios are showing a good recovery but still not back to the heady heights of December 2021.
As odd as it may seem the S&P has entered a bull run having risen by 20% since last October. In the first quarter of 2023, the top ten contributors to this performance accounted for 90% of the market rise, with Apple, Microsoft and Nvidia contributing to half of the rise. In contrast in 2022 the top ten companies by size collectively fell 37% compared to the market fall of around 18%. Before you jump ship and decide these are the “answer” bear in mind the US$32 trillion of wealth created between 1926 and 2015 in the US market, was entirely generated by the top 1,000 companies, or put another way, less than 4% of the total number of companies that had existed on the US stock exchanges.
Without a crystal ball or time machine knowing which 4% is impossible. Stock picking is impossible. Jack Bogle, founder of Vanguard is quoted as saying “‘Don’t look for the needle, buy the haystack!’
2. Interest rates and inflation:
Expectations of rising interest rates have added pressure to financial markets. Concerns about inflation have also emerged, with central banks closely monitoring these developments and their potential impact on the economy. In the US inflation is showing signs of cooling whereas the inflation in the UK is particularly stubborn. This is forcing the Bank of England to use the only tool in its arsenal, interest rates, to bring the situation under control. There is anecdotal evidence that with sharply rising re-mortgage rates the big increases are now beginning to bite, and bite hard. High interest rates are likely to persist well into next year as central banks, who were caught off guard, only want to inflict pain once and want to choke inflation for the foreseeable.
3. Oil and gas prices:
Even as the price of fuel recedes at the forecourt and there is hope of fixed domestic rate deals in the offing, oil and gas companies still post eye watering profits. The debate rolls on over the merits of windfall taxes with one side pointing out the disparities of huge profits and with the cost-of-living crisis still very much front and centre for so many in the UK; the other side says windfall taxes hamper future exploration.
If Labour gets their way North Sea exploration may well be a thing of the past. Either way the focus on renewable energy continues to grab the imagination of business and politicians alike. Switzerland have recently backed a new climate bill designed to cut fossil fuel use and reach net zero carbon emissions by 2050. However, this is derisory when compared to the likes of Kenya where 80% of its electricity is generated by renewable sources, or Uruguay where the figure is 99%.
4. Ukraine:
Tensions in Ukraine have escalated, particularly in the ongoing conflict with Russia in the eastern region. International efforts to find a diplomatic resolution and de-escalate the situation have been ongoing, as the stability of the region and global relations remain a concern. There is no letup of fighting. If anything, with Ukraine’s counter offensive underway and the supply of F16 fighters it looks like this conflict is going to persist long after inflation is a concern.
5. Environmental innovation:
Environmental innovation has gained prominence, with increased focus on sustainability and climate change. Investments in renewable energy, green technologies, and regulations aimed at reducing carbon emissions have surged. This shift towards a more sustainable future has impacted various industries. Towards the end of last year US scientists had glimpses of a breakthrough with nuclear fusion, the holy grail of the world’s energy and environmental conundrum. A net energy (more energy was created than used) gain indicates technology could provide an abundant zero-carbon alternative to fossil fuels.
6. Political and societal changes:
The last six months have seen diverse societal changes. May seemed to be a series of workdays interconnected with lots of Bank Holidays. One such holiday was the coronation of King Charles, the first coronation witnessed by the UK in 70 years. As the Royals struggle for relevance in our rapidly changing society, the coronation came under immense financial scrutiny and controversy about the estimated cost of £100m. These direct costs always grab the headlines, but it has also been estimated that the coronation will have generated c. £1billion; a reasonable return in anyone’s eyes – royalist or not.
We have succeeded in holding onto a Prime Minister for a full six months. Something of a novelty. That said, the self-inflicted decline of the Tory party continues at pace with focus yet again falling upon Boris Johnson and his inexcusable behaviour and Tory workers during Covid restrictions. Meanwhile Labour gained a significant number of councils and council seats in the recent elections. They now sit eagerly waiting in the wings anticipating their turn in Government but still struggle to develop a clear message to deliver the killer blow to the Tory’s thirteen-year reign. Time will tell but we will have to wait a few more years to see how this one plays out.
The country is dogged by industrial action from many different quarters, the NHS, trains, teachers to name a few. All citing, though not exclusively, the cost-of-living crisis being at the heart of their grievances, having taken the brunt of cost cutting measures for many years. Meanwhile oil companies post record profits and discussions around windfall taxes rumble on.
On the other side of the pond Donald Trump continues to rack up legal fees in his bid to stave off more legal prosecutions. For the first 234 years of the nation’s history, no American president or former president was indicted. That changed in March 2023, when Trump was charged with 34 felony counts in connection with hush money payments to a porn star. Less than three months later, he was indicted again, this time on 37 felony counts for classified documents and impeding investigators. Not to mention two other ongoing criminal probes, both related to 2020 election interference. Even with the most vivid of imaginations, you couldn’t make it up.
7. AI:
Once a subject for movie scripts in the halls of Hollywood now AI, with the likes of ChatGPT and Bard entering our lives, these language processing tools are becoming mainstream. The sudden rise of AI, even though it has been evolving for decades, has sparked debates about its implications for society. AI has far reaching beneficial consequences for a vast number of disciplines. For example, in healthcare, the early detection and diagnosis of diseases by AI machine learning models could be used to observe patients’ symptoms and alert doctors if certain risks increase. It can immeasurably speed up the clinical decision-making process, generating more rapid and realistic results that can lead to improved preventative steps being implemented.
There is a reasonable amount of chatter about the impact AI will have when it comes to investing. The consensus is the largest AI tool for prediction of market prices is still the market itself. Whilst AI may improve the implementation of trades it is highly unlikely to be able to predict the future. Weirdly if AI could predict the future, this benefit would then be priced into the market, and we are back to where we started but maybe a little more efficient than before.
Despite all the promise of AI, I prefer to accept market prices rather than prices from algorithms. Large language models, the types of AI that power tools are intended to understand and generate text that seems as if it was made by humans, cannot predict future outcomes.
8. Geopolitics:
The state of world geopolitics remains complex and ever-changing, with ongoing conflicts, shifting alliances, and diplomatic negotiations shaping global affairs. The Russian invasion of Ukraine still dominates the news and shows no sign of a resolution in sight.
Concerns about geopolitical tensions and their impact on the global economy persist with the two largest economies, China, and the US, seemingly at logger heads over many issues. However, in recent days, both countries appear to be keen to make amends, at least on the surface. Both need to be mindful of the inexorable rise of India as a major world economy. Goldman Sachs projects India’s GDP will overtake the Eurozone in 2051 and the US in 2075. It may seem like a lifetime away, but AI was sleeping for the best part of 40 years and now look!
The past six months have highlighted significant geopolitical events, and brought societal changes and concerns to the forefront, showcasing the importance of patience in investment decisions.
Finally, if I may, a short update about Magus Wealth, as this week sees us celebrate 25 years of Magus Wealth and it’s been quite a journey.
Like any journey, we’ve had our twists and turns. With every one of our 25 years we have grown in our capabilities and continue to fine tune our destination and how we will get there. I believe now is the most focused and well equipped we have been to make it happen.
Without a culture and a great team, you can’t run a business – we have a close-knit team, who always show such dedication, who are hardworking and most of all, who have fun along the way.
I have had a change of role this year – I’m in the process of writing a book and for those of you who know me, this is something I have talked about for several years. It has not been easy, but I’m so glad I have such a strong management team around me that has enabled me to do this.
I am also going to be spending time coaching and developing our Planning team as we are constantly seeking personal and professional growth within Magus Wealth, and we want to ensure the team are fully supported in their growth so that we have a strong, sustainable business going forward over the next 25 years.
For you, the advantage of Magus Wealth being here 25 years on is it gives you the time you need to build your wealth and live your life the way you truly want. It is a privilege to have played a small part in your journey. It is also a privilege to have worked alongside so many great people.
Who knows what the next 25 years will bring? I view the growth of the business a little akin to compound growth of a portfolio….
All I do know is if I am still here, I’ll be older than Joe Biden is now. So, anything is possible!
Michael Aitken
Founder and Chairman
Oh and one more thing, we’ve put together this short montage showing how our brand has evolved over the last 25 years. We hope you like it.
Article sources:
Market performance and patience:
Nasdaq Top 10 names responsible for 90% of gains
Oil and gas prices
BBC News article
Environmental innovation
The Independent article on Nuclear Fusion
Political and societal changes
The Express article on cost of the Coronation
Politico article on Trump criminal Investigation
Geopolitics
Forbes article on Chinese, Indian & US economies
Risk warnings
This email is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
