Meteorological summer is upon us next week and for just about all of us the weather this week has been lovely. Although there is some respite this coming week for the odd ones [Ed – by which you mean ‘few’ of course!] for whom the heat and sun are no fun.
The temperature in the markets this week was to be found once again in the US, especially in the tech sector. That’s a story we’ve been hearing for quite a while and Barrons report that the Nasdaq share index has had its best couple of months in decades. And it’s hard to argue against that as it has grown by 23% since the 1st April. Remarkably, if we roll that back to 30th March, it is up 29.7%. Phew!
I love it when I can bring to you a format of the information and I am pleased that Rathbones this week sets out their thinking on stock markets in a slideshow, with audio commentary.
Commenting on how US stock market valuations are well above long-term averages, when we consider their price relative to expected earnings over the next 12 months. And positive performance over recent years has relied on the results of a small number of names – mainly tech stocks – driving the majority of the market’s return.
They ask if these facts are cause for concern about investing in stock markets? Investors always need to stay vigilant. But there’s much to be cheerful about, when looking at equities:
- For AI stocks, net margins look strong and balance sheets healthy, compared with tech stocks in 2000, on the eve of the tech bust.
- Corporate earnings growth has improved across the world, and earnings revisions have tended to be up rather than down.
- Attempts by investors to distinguish AI winners from losers have created a marked divergence in the performance of different stocks. This presents buying opportunities.
You can find this on our website.
We shouldn’t ignore the traditional markets though as the Dow Jones Industrial Average crossed the 51,000 point barrier for the first time, and the Wall Street Journal reports that it was a sharp drop in oil prices that has helped propel stocks to fresh records this week, buoyed by investor optimism over a possible peace deal between the US and Iran. Brent Crude futures (the international benchmark, apparently!) experienced the biggest monthly reduction since March 2020 after falling 11% in the last week. For the month it is down 19%.
Of course, as the US becomes ‘hot stuff’ again focus turns away from the UK which is marginally down on the week. Whilst reported in Bloomberg, Canada edged into a technical recession as weak business and government spending drove a slight contraction in the first quarter, pointing to persistent slack in the economy amid the US trade war. Real gross domestic product fell by 0.1% on an annualized basis during the first three months of the year. That follows a 1% contraction in the fourth quarter, a downward revision from a previously reported 0.6% decrease.
Need I add the comment – “diversification!!”
Bullet Point Collection Point
The usual Tatton Weekly covers the following topics:
- Calmer markets Positive markets as yet more hints at a US/Iran peace agreement calmed nerves, and oil prices. Bond yields continued last week’s decline, but this might well now be because of dimming longer term growth expectations.
- SpaceX: to the moon or rapid disassembly? As the scramble to own some of the $70bn shares being made public heats up, we look at the opportunities and challenges for SpaceX’s listing on New York’s Nasdaq stock exchange.
- Commodity nationalism Guinea in West Africa is the latest developing economy to assert pricing power over its natural assets and prevent exploitation from major economies, but higher commodity prices also bring inflation risk.
In a very good episode of the Canaccord Coffee Break podcast recorded on 28 May 2026, Jane Parry, Chief Marketing Officer, is joined by Richard Champion, Co-Chief Investment Officer, to discuss:
- Why US growth continues to look resilient and what’s driving it
- What weaker UK data is signalling
- How inflation and energy prices are shaping the outlook for both central banks
- Why the key question may now be how sustainable growth really is.
And from RBC Brewin Dolphin, Head of Market Analysis, Janet Mui, examines what’s driving investor confidence as markets soar to new highs, in the attached Markets in a Minute.
Key highlights
- Economic divergence: U.S. manufacturing showed resilience, while the UK services sector contracted, prompting a recalibration in gilt yields.
- Global stocks soar: The global equity market hit new highs as investors looked past geopolitical volatility to focus on the strength of corporate earnings and the ongoing AI investment cycle.
- UK inflation cools: UK inflation dropped to 2.8% in April, offering the Bank of England (BoE) temporary relief before energy caps shift.
Chart of the Week
Have you been thinking about air conditioning this week?
15% of UK households have installed air-con in the last five years. There are now 4 million UK homes with air-conditioning of some kind.
And, based on every single conversation that seems to be going on in the 7IM office, that’s only going to go up.
Currently, the UK grid isn’t built for it.
Typically, UK demand for electricity does the opposite of the temperature – the further we are from Christmas, the less power we use. Sunny, warm July demand is a third less than cold, dark January. The average person in the UK uses ~4,500 kWh electricity per year.
Sources: UK, NESO, Spain, REE, Singapore, EMA
But that’s not how everywhere else works. Spain shows the way we might be going. 41% of Spanish households have air-con (although in the southern cities it’s more like 75%).
So, they have the same demand for power in the cold, dark winter. But then you get a spike back up in the summer months as the air-con use kicks in. And so, the average Spaniard uses 10% more electricity per year, at ~5,100 kWh.
Finally, there’s Singapore, with an average temperature of 28 degrees, and almost no variation. The entire economy isbuilt on air-conditioning. Demand is constant. The average Singaporean uses ~10,000 kWh.
Now, we might not be turning into Singapore.
But even if we get a little more mediterranean, the amount of investment needed will be HUGE.
It’s not just the overall energy that we’d need to generate, but the beefing up of the grid too. Because if every house on the street wants a bit more electricity at the same time, that’s a BIG problem.
Planned grid upgrades are £54 billion over the next 5 years, based on the existing UK demand curve. A few more weeks like this and that number’s going to have to jump up sharply …
A Hot Topic
The following thought-provoking piece, especially for those in company lifestyle profiling investments, was published by Fidelity:
In 2014, two American financial planners, Wade Pfau and Michael Kitces, published a paper called “Reducing Retirement Risk with a Rising Equity Glide Path”. It’s not the snappiest of titles, but the report grabbed the attention of the industry by proposing a startling idea: that people should increase – not decrease – investment risk as they age.
“Results show, surprisingly, that rising equity glide paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios,” the report concludes. In other words, if you increase your exposure to stocks over the course of your retirement, you are less likely to run out of money and – if you do – the deficit will be relatively small.
In the study, retirees hold different combinations of stocks and bonds. Each pensioner withdraws either 4% or 5% of their portfolio in the first year of retirement and adjusts this income for inflation in subsequent years. Pfau and Kitces play this scenario out in a dizzying variety of ways, using different assumptions about investment returns and time horizons. In most cases, they arrive at the same conclusion: it is best to steadily increase your equity exposure throughout your retirement. Specifically, you want to start retirement with 20% to 40% of your portfolio in equities and steadily increase this to 60% to 80%. This approach “generally performs better” than either static portfolios – where assets are rebalanced every year – or portfolios that scale back stock market exposure over time.
To many people, this will sound like utter madness. Stocks lurch around, and the older you are the less time you have for them to bounce back. The risk involved is arguably unpalatable – particularly given the cost of care. “Expenditure could increase significantly in later years if you need any type of care support,” says Lisa Whiting, policy manager for Fidelity’s wealth management team. “This means ensuring that you have an accessible, stable pot of money to cover this eventuality. As an adviser, I don’t want to put your money into a high-risk strategy at a point when you might need to make significant capital withdrawals to cover spending.”
So what is the reasoning? Well, it boils down to something known as sequencing risk. Two people can retire with the same amount of money and get the same average return over many years. However, if one of them experiences a market crash early on, that person is likely to end up much poorer. Let’s imagine you have £150,000 in your pension and you take annual income of £7,500, increasing by 2% a year to keep pace with inflation. If markets rose by 5% a year for nine years, before dropping by 15% in year 10, your pension pot would be worth roughly £113,000 at the end of the decade. However, if markets fell by 15% in the first year of your retirement, before rising by 5% a year thereafter, you would have just £95,300 by the end of the decade. Same average return, very different outcome. This is because, in the second scenario, you are forced to sell investments when they are down, meaning you lock in your losses. Even though the market recovers, you have less capital to benefit from the uplift.
Pfau and Kitces argue that traditional retirement strategies can exacerbate this problem. “In scenarios that threaten retirement sustainability, such as an extended period of poor returns in the first half of retirement, a declining equity exposure over time will lead the retiree to have the least in stocks when the good returns finally show up in the second half of retirement,” they say.
This does beg the question of what happens when circumstances reverse; when strong stock market returns in early retirement are followed by a fall. The authors are fairly blithe, however, saying “in scenarios where equity returns are good early on, the retiree is so far ahead it doesn’t matter”. This underplays the issue somewhat. Limiting your exposure to equities early in retirement could result in missed opportunities, which in turn could weigh on future wealth.
The main problem isn’t mathematical, however, but psychological. While the logic behind rising equity glide paths makes sense, many people would find the strategy too risky, and there is a strong chance that some would lose their nerve entirely. Nevertheless, the research serves a purpose for everyone. First, it is a useful reminder that managing risk in retirement is an art not a science. When everyone had to buy an annuity by age 75, it made sense to shift heavily into ‘safe’ assets. Noone wanted to experience a stock market crash on the eve of their 75th birthday. Under the new rules, however, striking a balance between safety and growth is far more nuanced.
To me this just highlights the advantages that good advice and the use of a structured retirement/income solutions can provide. If you want to know more, please speak to your usual JB Wealth advisor.
Miscellaneous
The Treasury has delayed publishing its cash ISA reforms amid concerns that rules designed to close loopholes are too complex, Citywire understands. The government is preparing to cap the amount savers under 65 can put into cash ISAs at £12,000 from April 2027. As part of that it is introducing anti-circumvention rules to prevent savers getting around the cap by holding cash in stocks and shares ISAs. Sources close to the discussions say they expect the final rules will include a 22% charge on interest on any cash or ‘cash-like’ investments, such as money market funds, held in stocks and shares ISAs.
Fun fact: There is a so-called “Nancy Pelosi ETF” strategy that tracks stocks linked to the trading activity of prominent U.S. politicians, particularly focusing on disclosed transactions by members of Congress. I wonder how well it is doing lately, but I suspect the word doing a lot of the work in the statement is ‘disclosed’!
The Dow® has been tracking the U.S. equity market for 130 years. From its first close at 40.94 in 1896 to recent highs above 51,000. If only great great (great?) grandad had invested then! Oh the magical power of compounding!
I’m off now to try the delights of the Tonbridge Food Festival, so the diet starts [Ed – again!] tomorrow. Have a great weekend and I hope to catch you next time.