Stock portfolios are feeling the “autumn chill”, says The Economist. US markets spent the first half of 2024 in a “euphoric mood”, notching up weekly gains in 28 of the 37 weeks through mid-July for their “best streak in more than three decades”. Yet a series of sell-offs that began over the summer have made for a more cautious mood on Wall Street.
The tech-focused Nasdaq Composite index dropped 5.8% last week for its worst weekly showing since 2022, while the S&P 500 finished down 4.3%. Disappointing manufacturing and jobs data triggered the latest bout of market shivers, says Kristina Hooper of Invesco. One survey showed US job openings in July were at their lowest level in three and a half years.
Still, investors should remain optimistic that a “soft landing” – where the world’s biggest economy cools without entering recession – is still possible. For one thing, while US manufacturing is struggling, surveys of the much bigger service sector remain solid. With inflation finally coming under control, long-suffering consumers will start to feel less crushed by price increases. Finally, US interest-rate cuts are imminent and “should help power a re-acceleration”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Time to forget US stocks and buy bonds?
Shaky stock markets are reminding investors about the attractions of bonds. Yields, which move inversely to prices, are falling. The US 10-year yield has dropped from 4.7% in April to 3.6% today, with the UK 10-year gilt yield similarly down from a peak above 4.6% last year to 3.8% now. Investors traditionally look to bonds to act as a hedge against stock volatility, says Jon Sindreu in The Wall Street Journal. While big tech shares plunged last week, a traditional American “60/40” stock and bond portfolio endured a comparatively gentle 1.9% loss.
Complex debates about whether fixed income still offers proper diversification aside, there is a simpler reason to like bonds right now: they offer decent, dependable income that investors “may want to lock in” before interest rates fall further. The great debt “shock” of winter 2022-2023 is drawing to a close, says the Bearbull column in Investors’ Chronicle. With the UK embarking on an interest rate cutting cycle, a bullish period for gilts should lie ahead.
For investors who are in or nearing retirement, an allocation to less volatile bonds may suit their lower-risk appetite better than going all in on shares. And while gilt income is taxed, UK gilts attract capital gains relief, which especially increases the appeal of gilts that are bought at a discount to their face value. Given the well-known fragility of UK government bonds, gilts’ tax exemption is unlikely to be on the Budget chopping block.
In market lore, bond investors are regarded as level-headed, while stock traders are prone to fads, says Katie Martin in the Financial Times. But over the last two years, bonds have been almost as excitable as shares, swinging from wild predictions of emergency rate cuts to deep gloom. With “signal-sniffing algorithms” playing a bigger role, a “long period of bond-market stability, verging on tedium”, is over.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Jim O’Neill on nearly 25 years of the BRICSJim O’Neill, who coined the acronym BRICS in 2001, tells MoneyWeek how the group is progressing
-
Build or innovate? How to solve the productivity puzzleOpinion There are two main schools of thought when it comes to solving the productivity puzzle, says David C. Stevenson
-
Should ISA investors be forced to hold UK shares?The UK government would like ISA investors to hold more UK stocks – but many of us are already overexposed
-
Why Scotland's proposed government bonds are a terrible investmentOpinion Politicians in Scotland pushing for “kilts” think it will strengthen the case for independence and boost financial credibility. It's more likely to backfire
-
Three solid British stocks going cheapOpinion Ian Lance and Nick Purves, fund managers at Temple Bar Investment Trust, highlight three British stocks with strong cash flows and robust balance sheets
-
Profit from other investors’ trades with CME GroupCME Group is one of the world’s largest exchanges, which gives it a significant competitive advantage
-
Key lessons from the MoneyWeek Wealth Summit 2025: focus on safety, value and growthOur annual MoneyWeek Wealth Summit featured a wide array of experts and ideas, and celebrated 25 years of MoneyWeek
-
How to find value in Asian small cap stocksThree competing Asian investment trusts all have good records, but this one is the obvious choice at present, says Max King
-
The battle of the bond markets and public financesAn obsessive focus on short-term fiscal prudence is likely to create even greater risks in a few years, says Cris Sholto Heaton
-
'We still live in Alan Greenspan’s shadow'When MoneyWeek launched 25 years ago, Alan Greenspan was chairman of the Federal Reserve. We’re still living with the consequences of the whirlwind he sowed
