US stocks have been rampaging lately, and this week was no different. Whether the visit from King Charles had any impact I couldn’t say but not only did they close April at record highs with the S&P 500 passing £7,200 (£5,289) for the first time, this continued on May Day too.
The final week of the month saw four of the US’s largest tech companies report their earnings. Alphabet, Amazon, Meta and Microsoft, make up more than half of the so-called ‘Magnificent Seven, which have been driving stock market growth in recent years.
The four companies reported collective earning growth of 60 per cent this week!
Portfolio Adviser summed up goings on in the UK this week reporting the Bank of England’s Monetary Policy Committee has opted to hold rates at 3.75% in an 8-1 vote, with the dissenter voting to raise rates to 4%.
The announcement noted that the prospects for global energy prices are highly uncertain. “Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably,” the summary noted.
While CPI inflation has risen to 3.3% and may rise further from here, the labour market has continued to loosen, and a weaker economy could contain inflationary pressures. On top of this, financial conditions have tightened since the conflict began, helping to reduce inflation over time
Market News
There are plenty of market updates to last us over the bank holiday weekend. We start with the usual Tatton Weekly and its depiction of President Trump out and about with the Red Lion Golf Society, covering the following:
- Markets making the best of it – Considering oil spiked to over $120 a barrel again, flat to rising stock markets this week seem out of sync – what made them keep their cool, and can it last?
- Emerging markets keep emerging – Assumed to be the most vulnerable to geopolitical shock Emerging Markets, despite a familiar big tech dominance, are showing more robust economic returns.
- Bond yield moves expose structural weakness – Rule changes to UK pension funds removed the attraction for long term government bonds and has left a troublingly skewed market, with negative consequences
Being rather greedy this week we have two, yes two, Monthly Digest from John Wyn-Evans, Rathbones’ Head of Market Analysis [Ed – how come you only manage one bulletin a week?]
Meanwhile, Guy Foster, Chief Strategist at RBC Brewin Dolphin, discusses how a tightened energy market could affect investment markets in the latest Markets in a Minute video. Plus, head of Market Analysis, Janet Mui, analyses fresh U.S. economic data.
Key highlights
- What’s next in the U.S.-Iran war? Markets’ anticipation for a reopening of the Strait of Hormuz fell to 34% last week. The implications of a further five weeks of disruption are stark, causing additional tightening in the energy markets.
- Firms predict price rises: The Bank of England (BoE)’s Decision Maker Panel expects companies to raise prices by 4.4% over the next year and for inflation to reach 4% – double the BoE’s target.
- U.S. corporate earnings results: With about a quarter of companies having reported, aggregate earnings are coming in around 10% above expectations, producing a blended year-over-year growth rate of 14.4%.
Cashing In
An interesting take on this comes from Louis Coke Louis Coke, Director of Private Clients at Charles Stanley:
UK government bond yields have risen of late. For example, 12 months ago the yield on a 3-year Gilt was around 3.6%, and today it is 4.5%. Why this is interesting is because as you know, a lot of clients have large cash balances that attract large income tax liabilities. Especially for high earning clients, their net return on cash deposits can be really quite low, even as interest rates are relatively high.
Gilt yields rising mean that investors can get more total return by investing in UK Government debt, and if structured so that they invest with most of the return delivered as capital, not income, the net return to the clients is much more attractive. Most of the return comes through as capital with no CGT liability, and only a small part of the return comes through as interest income.
Yields do of course move up and down and there is always the risk that they may move higher (which would mean Gilt prices fall) if, for example, we saw a meaningful rise in UK interest rates or a significant disruption in terms of Government or the economy. However, the way I tend to run Gilt portfolios focusses on shorter dated issues trading at below their maturity price, so the impact of this is likely to be temporary, if at all.
The chart below illustrates what I mean. The green line is where yields were 12 months ago, and the blue line is today. The horizontal axis runs from one month (1m) to 50 years (50y) – this is the length of time before the various Gilt issues mature. We are focussed on the left-hand side of the chart, and the difference in yields between 1 and 3 years is where I believe there to be some opportunity.
Turning Another Page
Once upon a time, there was a little bookshop in Notting Hill. You might have seen the film …
But just as Notting Hill was hitting cinemas, Amazon was launching in the UK. Game over for independent bookshops and their devilishly handsome, clumsily charming, oh-so-British owners. Big bad wolf comes to town = no more town. Online arrived. Bookshops die. The end.
For a while, that’s what happened. Big brands like Borders died quickly, disappearing entirely less than a decade after Amazon arrived. And Notting Hill-style independent bookshops suffered to, with half of them closing by 2016.
No more town.
Except.
Source: 7IM/ https://booksellers.org.uk/
The downward trend stopped in 2016.
In 2026, we’re back to well more than a thousand independent bookshops. Companies like Waterstones have been opening new shops too, with more to come in 2026. You can see the same pattern in the US too.
This isn’t people rejecting Amazon – their results came out on Wednesday – they’re doing ok 😉.
And it’s not that bookshops are outcompeting Amazon either. That’s simply not possible. It’s that bookshops (and book-buyers!) have worked out what their purpose is.
It’s NOT about book delivery, not about getting people the specific book they want as quickly as possible. That’s a job for Bezos and pals. You see bookshops offer something a delivery service can’t. Connection.
Browsing aimlessly. Coming out with a recommendation, from someone you’ve never met. Finding an old favourite you weren’t looking for. Meeting a famous and beautiful American film star and falling in love … you know, connection.
Hiking instead of driving. Cooking instead of ordering. Calling instead of messaging. And so, gradually, bookshops are creeping back onto high streets – often supported by locals who want a bookshop (such as Backstory in Balham, supported by our own Chris Justham).
This analogy maps perfectly onto fears around AI and jobs. A job isn’t just a list of tasks*.
If a bookshop’s sole job was to deliver books, we’d have none left. The economics don’t work vs. Amazon. But thesocial psychology of a bookshop? That’s worth something more than an anonymous package through your letterbox.
*(Ben wrote more about this recently and I attach a copy)
Chart of the Week
I know you like a good chart [Ed – so do you, it fills up a lot of the bulletin!] so the following is from Marlborough Investment, who have a simple test for how the economy is really doing.
It’s not about gross domestic product (GDP) data or inflation forecasts. It’s whether your local restaurant is busy… and whether what’s on your plate looks the same as it did a year or two ago.
A number of clients have raised this recently, highlighting the Côte Brasserie chain of restaurants. They’re still full. The atmosphere is good. But portions don’t quite feel as generous as they once were. It’s a great real-world example of what’s happening beneath the surface of the UK economy.
On the face of it, things look fine. But dig a little deeper, and you can see the pressure. In the case of restaurants, that could be higher prices, subtle menu changes or smaller portions.
These real-world signs of economic stress fit with what we’re hearing from institutions like the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development.
The message is consistent. Growth is holding up for now, but the outlook for the UK economy is weakening. UK Consumer Prices Index (CPI) inflation ticked up from 3.0% in February to 3.3% in March, driven almost entirely by fuel prices. The Bank of England has warned a prolonged energy shock could push inflation higher still.
Meanwhile economic growth is slowing. The IMF has cut its forecast for UK economic growth in 2026 to 0.8% (compared to its January prediction of 1.3%). This combination of weaker growth and rising inflation is what’s driving negative headlines.
But the economy is not the stock market. It’s easy to assume that weaker growth leads to weaker markets. In reality, the relationship is far less direct. The FTSE 100 is a good example. As our chart shows, despite years of subdued domestic growth, it has delivered steady positive returns.
The reason is simple: most of the companies in the index are global businesses. Around three-quarters of FTSE 100 revenues are generated overseas. These companies are driven more by global demand, commodity prices, and international trends than by the UK consumer. In fact, some of the very forces that are weighing on households, like higher oil prices, can boost earnings for some companies.
So, while the UK economy may feel like it’s under pressure, the UK stock market has a different set of drivers.
To paraphrase veteran investor Warren Buffett, markets are forward-looking machines. Economies are slow-moving ones. And right now, that gap is on full display.
‘Til Death Do Us Part
In recent months we’ve been talking a lot about the future changes to how IHT will apply to pensions. We now know that from 6 April 2027 pensions will no longer be exempt from IHT. Fiona Hanrahan, Senior Pensions Development and Technical Manager at Royal London, says that “with pensions being included in the estate from April 2027 this could make estate planning for unmarried individuals even more challenging.”
“Even if you have been a couple for many years, if you are not married or in a civil partnership, inheritance tax (IHT) could apply on the first death even if you leave everything to your partner.”
“During lifetime, gifts to a spouse or civil partner would be free from IHT but, again, this exemption would not apply to unmarried couples. The ability to pass on any unused nil-rate band or residence nil-rate band does not apply to unmarried individuals either.”
“Most people’s main assets will be their house and their pension. Let’s look at how IHT would apply for an unmarried individual if they died before or after April 2027. In this example we have assumed that there are no direct descendants to pass the house to, and therefore the residence nil- rate band will not be available.
| Before 6 April 2027 | After 6 April 2027 | |
|---|---|---|
| House | £300,000 | £300,000 |
| Unused pension fund | £300,000 | £300,000 |
| Nil rate balance | £325,000 | £325,000 |
| IHT due | £0 | £110,000 |
“In this example there is a significant difference when pensions are included in the estate for IHT, which is made worse by no spouse exemption or residence nil-rate band being available. It’s also worth remembering that the nil-rate band of £325,000 will remain at this level until 2031, which will likely see increased numbers of people in scope of IHT as asset values rise.”
“If death occurs after age 75, there will also be income tax payable by the beneficiary when they take the benefits from the remaining pension fund after the portion relating to IHT has been deducted.”
Miscellaneous
Millions of UK pension savers could be missing out on tens of thousands of pounds in long-term returns by delaying contributions until the end of the tax year, new data from digital pension provider Penfold had suggested reports MoneyWeek. Take someone investing £10,000 at the start of each tax year. Over 25 years they could end up with around £24,000 more than someone who waits until the end of each year to contribute the same amount, assuming 5% annual growth, according to Penfold’s calculations. If you want to take advantage of this, please speak to your usual JB Wealth advisor.
Also in MoneyWeek, is an article about which we know a lot. Default pension funds vary quite widely by performance. This can have a significant impact on overall returns and the size of your final pension pot and is something pension savers should monitor. Savers in Aon’s default fund have enjoyed the highest returns over the past 10 years, with cumulative returns almost three times that of Now: Pensions, the worst-performing default pension fund over this period, according to Corporate Advisor’s CAPAdata figures. It’s definitely worth checking out where your money is being invested in your workplace pension scheme.
Whilst Saturday might be World Tuna Day (who knew!!) (or why??) it’s not on the menu for my youngest’s birthday party this weekend, followed by a visit to see my eldest in a play. I hope you have a more relaxing long weekend then I have planned but, don’t tell them, I wouldn’t change it for the world. I hope to catch up with you next time.