.jpg)
The TCFP investment committee met on 10 March to discuss the current economic, political and investment environment.
As a result, we will be rebalancing portfolios this week to take advantage of the recent step back in the value of equity market. Here are brief notes of our discussion:
Current Market Overview
- The S&P 500 is down 1.8% year-to-date, approximately 5% below its peak.
- Recent market volatility aligns with the historical pattern of a 10% pullback followed by recovery, though this is the first such occurrence in two years.
- Economic uncertainty is high due to fiscal policy shifts in both the US and Germany.
- US markets are reacting to reduced public spending and fiscal tightening, impacting investor confidence.
- The German market has surged 13% year-to-date, driven by expectations of increased government spending.
UK Economic Position
- The UK starts from a weaker fiscal position compared to Germany.
- The government is reallocating existing spending rather than introducing significant new expenditure.
- Tax policy remains uncertain, with potential further hikes if reallocation is insufficient.
Interest Rate Outlook
- The Bank of England rate is currently at 4.25%, having started the year at 4.75%.
- Market consensus expects two or three rate cuts this year, while our outlook suggests four in total, bringing the rate down to 3.75% by year-end.
- The US Federal Reserve is in a wait-and-see mode, but tariffs and economic pressures could lead to slower growth rather than inflationary concerns.
Geopolitical Considerations
- The Ukraine-Russia war may see a ceasefire by year-end, with a 72% probability according to market sentiment.
- Middle East tensions remain, though current ceasefires are unlikely to be lasting.
- German fiscal policy is under close watch, with a key vote on March 18 that could determine the direction of European markets.
Portfolio Adjustments & Client Impact
- Current model portfolio allocation: 80% equities / 20% bonds.
- Within equities: 45% large-cap, 30% small-cap, 5% emerging markets.
- Small caps are expected to perform well if interest rates decline in the second half of the year.
- Portfolio rebalancing will happen this week, taking advantage of recent market movements.
- The rebalance will allow ETFs to replace funds where possible due to Fidelity’s removal of the £1.50 dealing charge, improving cost-efficiency for clients.
Next Steps & Key Dates
- March 18: German fiscal policy vote – potential market impact.
- April 2: US tariff policy updates – potential trade tensions.
- Next Investment Committee Meeting scheduled for June 9.
We will continue to monitor market developments and ensure client portfolios remain well-positioned in this evolving landscape.