July 4th Election: What You Need to Know!

With the election set for 4th July, We wanted to share our thoughts—not as politicians, but as your financial advisers. We would like to offer our context on what is happening and how we are thinking about investments during this time. Please contact us if you’d like to talk about your financial setup during this period. We are here to help.

Rishi Sunak Calling the Election Date

The election date is big news, so without being politically charged, We are going to keep my perspectives firmly on investments and how we will act during the next few months.

In short, we believe you should continue to invest exactly as you have been. Politics gets the headlines, but it rarely impacts your investments. Even on the day Rishi Sunak announced the election, the markets hardly budged, with the FTSE 100 falling by less than 0.6%. On your annual statement, it would take a magnifying glass to see it. The same is true for any other election in recent memory.

So, why would the Tories call an election now? It is hard to tell, but one thing is for sure, this decision comes during a period of investment markets hovering around all-time highs. That’s probably the simplest way to describe what Rishi Sunak is banking on—people are starting to feel a bit better about the economy. Let’s dive into some of the details.

Observations on the economy – the consumer is the economy—over half of GDP comes from consumption, which means consumers play the largest single factor in how the economy performs. If consumers aren’t spending or feeling good, we have a problem. Fortunately, consumers are starting to feel better after a long, difficult period. We’ve had one quarter where the UK is growing faster than the US and Europe, so the Conservatives will want to use economic stability as a key battle card.

Inflation coming back near target – Part of the good feeling comes from the latest inflation reading, which is down to 2.3% and almost back to the desired 2% target. This could result in rate cuts, as predicted by many economists, which could take further pressure off many household budgets. Inflation is expected to fall further before the election, so the Conservatives will want to use this as a proof point.

Elections Don’t Tend to Impact Markets

Never say never in the world of politics, but, whilst the newspapers are ramping up their coverage of elections, from an investment market perspective—elections tend not to affect the fundamental drivers of markets. For the vast majority of companies, whether on high street or in the city, the election has little bearing on their decisions. Revenues and profits are rarely impacted.

Better News – Markets are Hovering Around All-Time Highs

Now for the good news, since the recent lows in September 2022 when inflation was rampant, markets have transitioned to opportunity, with the UK joining the US, Japan, Australia, Germany and others at new all-time highs.

This is great news for those who have been fully invested. It is also good news for those that are invested using a diversified approach to reduce risk. Even with bonds still going through a choppy period, the vast majority of our investors will have seen their portfolios go up in value.

As equity markets fire back to new highs, some clients can start to wonder if it is a time to take some profits off the table. Or for others, they may wonder if it is too late to put some excess cash to work.

Our take on this is statistical: staying the course historically wins. Investing during all-time highs still has a high probability of gains. In fact, all-time highs generally tend to be a great indicator of more all-time highs. To illustrate, we expand the data set to 1929, where you can see this large pattern emerge. All-time highs tend to cluster and it’s not abnormal for them to last for many years.

Author Morgan Housel has a great quote for those worrying about a market top. In his words: “All past declines look like an opportunity; all future declines look like a risk”.

So, while some investors may convince themselves, “I missed it!”—there’s ample evidence that may not be the case. Specifically, all-time highs usually don’t happen for no reason. In plain English, things aren’t great, but they are getting better.

All that said, we want to remain balanced and risk-aware during these periods. Markets do not move in linear patterns so we should not be surprised if sentiment shifts. This could happen both ways—with more good news or perhaps a setback. For this reason, we continue to favour a long-term approach of accumulating wealth while balancing the underlying risks.

To reiterate—statistically, it remains a good time to invest and we encourage you to continue doing so if you have the capacity. Even with the UK and US elections on our doorstep, the current climate remains ripe for wealth accumulation, as long as you keep a long-term horizon and don’t get whipsawed by the next election headline. We’ll be with you on this journey, seeking to help you understand what matters.

We hope this helps make sense of the election announcement and the current environment. If you have any thoughts or concerns, please do reach out.