Starmergeddon; Q2 Starts Positively    

Market Review:

The second quarter has started well for bonds and equities as investors regained the bullish disposition that has been in place for most of the year. There were meaningful gains all round, although the FTSE 100 lagged with only a 0.5% increase, the more domestically focussed FTSE 250 registered a 2.5% increase. It would seem the initial reaction of investors to a Labour government is positive. Bonds also enjoyed a good start to the year as yields dropped in response to softening economic data and this also helped Gold move toward its previous highs. Sterling also strengthened on the back of the election result.

UK – Starmergeddon

A screenshot of a computer  Description automatically generatedKeir Starmer’s Labour Party achieved a landslide victory in the UK general election following the collapse of Rishi Sunak’s Conservative Party, fundamentally altering the political landscape. Labour has secured 412 of the 650 seats on offer in the House of Commons, the highest since Tony Blair’s 1997 victory. The Conservatives suffered their worst performance ever, winning just 121 seats a loss of 252. Additionally, Nigel Farage’s populist Reform UK party captured substantial right-wing Conservative votes nationwide, although it secured only four seats and the Liberal Democrats smashed down the ‘Blue Wall’ in the South, with more than 70 MPs.

UK equity investors have reasons to feel optimistic as Britain emerges as a stable entity in an otherwise volatile global political landscape. With US and European politics in disarray, the UK’s stability is appealing. With the election concluded and a very strong working majority for Labour, the new government will find that they have inherited a reasonably strong economic position. The separatist influence in Scotland has lessened, and the UK’s net trade post-Brexit is rebalancing positively, with the country recently surpassing France, the Netherlands, and Japan in total exports. The UK is out of recession, with a 0.7% quarter-on-quarter GDP growth in Q1 2024 and a promising outlook for the rest of the year. Real disposable incomes are projected to rise by around 3% this year as inflation cools and recent tax cuts take effect. Both households and companies hold substantial excess savings, built up during the pandemic. As interest rates decrease, consumer spending and corporate investments are expected to increase, supporting an increase in GDP growth in 2025 and 2026.

Investor sentiment is bolstered by recent market activities, including 32 M&A transactions worth over £100 million in the first half of the year, with 60% involving foreign buyers at an average premium of 40%. This influx of foreign investment, along with attractive UK valuations and potential policy changes encouraging domestic investments, suggests to my mind that the UK equity market is arguably the most attractive on the world stage now.

Historically, while Labour governments have had mixed impacts on the stock market, the current economic fundamentals and market conditions should be the main focus for investors, not which party is in charge. However, regardless of which party is in charge, there are still challenges ahead such as net-zero commitments, productivity issues, and high national debt that the new government will also need to address to sustain this positive momentum.

US Update

It was a shortened week of trading in the US, as Americans celebrated Independence Day on the 4th July, but we did get a very important economic update with the US Jobs report of Friday, which was probably just what the Fed would have wanted to see. US hiring and wage growth slowed in June, with the jobless rate reaching its highest level since late 2021, increasing the likelihood that the Federal Reserve will start cutting interest rates in the coming months. Nonfarm payrolls rose by 206,000, while job growth for the previous two months was revised down by 111,000, according to the Bureau of Labor Statistics. It was stronger than the economists surveyed by Bloomberg had forecast (190,000) but arguably more importantly, the unemployment rate climbed to 4.1% as more individuals entered the labour force, and average hourly earnings moderated.

The average employment growth has now cooled over the past three months aligning with other reports showing a sharp decline in job openings and an increase in unemployment benefit claims this year. Markets weren’t quite sure what to make of the release as the higher headline number wasn’t quite what investors were looking for, but the downward revisions to the previous two months combined with the rise in the unemployment rate was enough for them to conclude it was good news. Both the S&P 500 and the Nasdaq set all time closing highs at the end of the week.

Biden refuses to go Top of Form

Bottom of Form

The Democrat concern over Joe Biden’s disastrous televised debate with Donald Trump is growing and there is a real possibility now that he will be forced to step aside, with Kamala Harris the current deputy now emerging as the front runner. The President is having none of it, as he dismissed calls to end his re-election bid and denied that his debate performance wrought significant damage to his campaign, a defiant and incredulous posture that looks increasingly likely to be challenged. Biden on Friday in an ABC News interview refused to commit to an independent medical exam to reassure the public of his mental fitness and insisted he has the stamina to serve another four years and declared only the ‘Lord Almighty’ would prompt him to even consider ending his bid. Don’t tempt fate was my takeaway to that!

Whether he is determined or delusional, Biden’s strategy appears to be the only viable option for a candidate determined to pursue a second term. Frustration is growing within his party and the issue will be put to the test over the coming week. News has broken of an unusual weekend meeting with top Democratic colleagues probably gathering to see if there is an appetite for a coup ahead of a broader House Democratic caucus meeting early next week. If he stays, I think Trump will win, if he goes it is likely to go down to the wire and there is definitely a sense that Kamala Harris could win if Biden is forced out.


France goes back to the polls for the second round of elections, with voting again open for seats where the winner received less than 50% of the vote. There are still more than 500 districts up for grabs and it now looks like Le Pen and her far-right National Rally party is set to fall well short of an absolute majority. The shortfall is due to some political shenanigans and a broad ‘entente cordiale’ between Macron’s centrist alliance and the New Popular Front who have strategically pulled more than 200 candidates from ballots this week to avoid splitting opposition to the far right.

Regardless of which party wins Sunday’s French parliamentary election, expect increased volatility in the country’s stock and bond markets as the likely outcome is a gridlocked parliament. Going forward, this situation could impede France’s efforts to address its budget deficit and halt President Emmanuel Macron’s pro-business reforms. But it is undoubtedly preferable to seeing the National Rally party in office with a clear majority.

Next Week

US earnings season kicks off with the big banks on Friday. Much now rests on the corporate sector to deliver strong growth, with estimates currently running at an 8.8% year on year increase for the S&P 500. We get the CPI Inflation data out of the US, Eurozone Industrial Production figures and a monthly estimate of UK GDP.