Get Rich slow: Half empty or half full?

DIY Investor’s Richard Latter delivers his thoughts on the market – is his glass half empty or glass half full?

 
 
We all know that its tough out there. Everywhere! 
 
The Bank of England’s outlook for the UK is poor with any economic growth likely to be minimal or flat in 2024. The increased costs of borrowing and the potential of future energy shocks all remain real threats, but is there a case (however fragile) for optimism? 
 

The case for glass half empty

 
Continued war in Europe and the escalating conflict in the Middle East, both with unimaginable amounts of human tragedy but also with continuing global implications, including seeing oil prices recently climb to $94 a barrel.  

Public markets, a few worrying statistics: 

• The London Stock Exchange is set to lose as many as 30 £100m-plus firms from public markets this year alone. This doesn’t even include a slew of small-caps under the £100m threshold that have either gone private, bust or announced plans to delist. 
• Up to the beginning of November, since hitting a high in September 2021, the FTSE 250 has declined by close to 30%. 
• In the UK, there are 70% fewer listed companies today than in 1996.  

 
The decline of retail investors in the stock market: just 11% of UK households now invest directly in shares, half the number it was in 2004. In the US 40% of households’ financial assets are invested in the stock market. Regulatory changes to address this are afoot, but can’t come quickly enough. 

We should expect higher interest rates for longer. BlackRock recently forecast UK borrowing costs remaining high for the next 5 years, citing ageing populations, difficult geopolitical relations and costs associated with energy transitions.  

Higher interest rates are, inevitably, beginning to feed through into mortgages. For those whose fixed rate mortgages are coming to an end, the average 2-year fix is currently around 6.3% and the average 5-year fix is 5.9%. It could have been worse (maybe) and might still be, but will be an increasing strain on many household budgets. 
 

The case for glass half full

 
Interest rates again. Having peaked, at least for now, at 5.25% we have a much needed breather and perhaps a little bit of certainty back into an uncertain world.  

The UK is (probably) not in recession according to figures up to the end of September 2023. 

Inflation is coming down: the next set of inflation figures are expected to be good news in that they will definitely be lower. September’s annual CPI inflation settled at 6.7%, but consensus expectation is for it to be below 5% when October’s figures are reported.   

The UK had positive growth of 0.2% in September, better than nothing (just).  

UK house prices rose in October: according to the latest Nationwide data, house prices rose by 0.9% on the month. 

After a couple of quite awful years for primary markets, could 2024 be the year where the IPO makes a comeback? Lyle Schwartz, Evercore’s head of equity capital markets for Europe, the Middle East and Africa, has recently commented that he feels there are “…a lot of really good companies that are just waiting on the sidelines for the current market volatility to settle down,” and went on to say that “Some issuers have decided to move their target IPO timing into 2024 when hopefully the macro, geopolitics and deal activity will improve.” On a number of levels, let’s hope so. 
 

Looking forward to 2024

 
There may indeed be tough times ahead for the UK but markets will always be forward looking and whilst sentiment has, in many areas, been the hostage to  pessimism, maybe some ‘green shoots’ are, perhaps, not too far away.  

For investors, the eternal question remains: ‘are we at the bottom of the market’? UK stocks have priced in a lot of bad news already. If rates do stay relatively flat then that could provide the catalyst needed for investors to come back to the market with renewed confidence. 

The Chancellor’s Autumn statement (likely the last one before the general election) is due on 22 November, what can he afford to ‘give away’ to make all our lives feel a little better/easier going into 2024? 
 
On a personal level, I’m looking forward to new challenges in 2024, and choose to be glass half full (just).