The impact of rising bond yields | May-22

As the US 10 year treasury yield tips over the symbolic 3% mark, it may mark the end of the ‘TINA’ trade (‘There Is No Alternative’). Investors that have gravitated to stock markets as bond yields dipped now have a broader range of options, particularly as inflation appears to be nearing its peak. 

However, the inflation outlook is still uncertain and futures markets continue to suggest bond yields could rise further. There is increasing value in stock markets today, though volatility is likely to continue. This should mitigate any significant moves back into government bonds. 

There are increasing recessionary pressures, with economic growth dropping in the UK, US and Europe. As it stands, the US and UK are both expected to grow by around 3.7% in 2022, while the Eurozone is expected to expand by 2.7%.  There are material risks to these forecasts from geopolitical uncertainty, rising interest rates and a high cost of living.

There are still opportunities for investors and the corporate sector remains in robust health. However, selectivity is important with a focus on those sectors and companies that can continue to thrive in a tougher environment. 

For more information on Evelyn Partners, please head to www.evelyn.com

This episode was recorded on 13/05/22

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531

After a brief recovery, stock market volatility has returned since the start of April. Market sentiment remains dominated by the war in Ukraine, with its knock-on effects seen in soaring inflation and weakening economic data. 

However, while a resolution to the conflict in Eastern Europe looks remote, there are supportive factors for stock markets. Economic growth has remained fairly resilient, with corporates showing considerable pricing power, enabling them to pass on higher input costs. Households are still relatively robust, with savings made during the pandemic. 

Central banks remain committed to fighting inflation through higher rates. Government bond yields have spiked notably higher in recent weeks with US real yields turning positive for the first time since 2020. Markets are adjusting to an environment where real rates could be sustainably above zero, with potential opportunities emerging in fixed income. 

For more information on Evelyn Partners, please head to www.evelyn.com

This episode was recorded on 20/04/2022

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531

It is important for businesses to have a strong tax risk management framework, as this should lead to a good relationship with HMRC and fewer HMRC enquiries. Before a business receives an enquiry letter, HMRC will probably have conducted a risk assessment and estimated any potential tax lost. Understanding HMRC’s process is therefore a good starting point. HMRC has access to a vast amount of information, both from the UK and overseas, to help identify potential risk areas within a business. These risks are usually identified when discrepancies are found between information from third party sources and details filed as part of a tax return.

Find out more in our published article: HMRC enquiries: 'Why a strong tax risk management framework is critical for businesses' 

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This episode was recorded on 13/04/22

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

While the Ukraine crisis has undoubtedly destabilised markets, they were already fragile. Inflation has been the key driver for this uncertainty, with CPI in the US tipping over 7%. For the first time in 40 years, investors need to contend with central banks tackling a sharply rising cost of living by raising interest rates

Food and fuel remain the key areas of rising prices. Labour shortages, rising processing costs and delivery concerns have pushed the UN Food and Agriculture Organisation’s price index up by nearly 50%. At the same time, energy prices have spiked in response to the Ukrainian crisis. 

Having initially considered inflation to be transitory, central banks are now starting to act. All eyes are on the Federal Reserve, which may raise rates for the first time since 2018 in its March meeting. This change of mood has delivered higher bond yields and may prompt a significant rotation in markets in the year ahead.

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This episode was recorded on 01/03/2021

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531

The tax year end is approaching on 5th April.  In this episode we discuss what you can do ahead of the year end to put you in the best tax and financial position. 

Episode overview:

• Consider making tax-free investments through National Savings or ISAs. The annual ISA subscription limit for 2021/22 is £20,000, and this limit cannot be carried forward if not used.

Remember, all investments fluctuate in value and you may not get back the amount invested

• Pension contributions are still a really tax-efficient way of saving for retirement, with tax relief given at your highest marginal rate of income tax. This is quite a complex area as tax relief is restricted in various ways.
• Spouses and civil partners can review who holds any savings that generate taxable income to ensure allowances are used efficiently.
• If you pay tax at the 40% rate or higher, you may be able to claim tax relief on gift aid donations you make to charity.
• As capital gains tax is charged when an asset is sold, you have some control over when to pay it, for example, assets could be sold to use your CGT annual exemption or unrealised losses crystalised to offset gains.
• On IHT, there are various allowances for gifts, which many people are unaware of.
• Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trust (VCT) investments may provide tax relief and the opportunity to defer capital gains, but are higher risk.

These options are relevant to most taxpayers but could be particularly valuable to those subject to an effective rate of tax of 60% on income between £100,000 and £125,140#.

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This episode was recorded on 28/02/22

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Tax [and Government] legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2021/22. 

Markets have had a volatile start to the year, with particular weakness from the technology sector. The immediate catalyst appears to have been the hawkish minutes from the most recent FOMC meeting, which raised expectations of faster and steeper interest rate rises. Global equities have fallen around 4%.1

US equities have led the decline, with a significant sell-off in the 6 US mega caps, including Apple, Microsoft, Alphabet, Amazon, Tesla and Meta Platforms. Valuations had become stretched and the sector had looked ripe for a re-rating. Value markets, such as the UK, have fared better. 

While inflation, Covid variants and geopolitical tensions continue to weigh on investor sentiment, policy easing in China should improve global growth prospects and mitigate the impact of US rate rises. Inflation remains the key variable for the coming months. 

Source

1 Refinitiv, Smith and Williamson

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This episode was recorded on 31/01/2021

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531

Last year was a story of big numbers: seven billion vaccines delivered; a further $9 trillion in stimulus and global growth at an impressive 5.9%. This helped add $13 trillion to the value of global stock markets. However, this growth came with an inflationary sting in its tail. 1

Consumer price inflation rose to multi-decade highs in the UK, Eurozone and US, pushed higher by accommodative policy, pent-up demand and supply chain difficulties. This saw treasuries deliver their 6th worst performance this century.1

Continuing economic growth, with businesses and households in good shape, plus restocking from record low levels, should support the stock market in the year ahead. However, greater volatility is possible: parts of the market look highly valued, while economic growth could disappoint if inflation proves persistent. 

Source:
1 Refinitiv, 4 January 2022

In this episode, Ami Jack Head of National Tax talks to by David Yewdall, from our Employer Solutions team and Clare Halligan, from our tax disputes and resolution team on HMRC enquiries into Coronavirus Job Retention Scheme claims.

HMRC has estimated the amount lost due to fraudulent or erroneous CJRS claims is £5.3bn, or close to 9%. Attention has turned to recouping this.

There are recent headlines about HMRC enquiries into the Coronavirus Job Retention Scheme/furlough scheme.  8.7% of all payouts in first year were deemed to be due to fraud or error. There may be a high number of errors due to the speed at which the scheme needed to be rolled out.  Can you explain more about why we have this high level of fraud and error? 

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This episode was recorded on 07/12/2021

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Tax [and Government] legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2021/22. 

As the global economy moves back to pre-pandemic levels and inflation accelerates, central bankers are under increasing pressure to reverse easy monetary policy. Central banks in South Africa, Russia, New Zealand and Mexico have already raised interest rates this year to contain overheating risk, but all eyes are on the Federal Reserve, ECB and Bank of England. 

The US has already laid the groundwork to raise rates over the next year or so. In November, the Fed started to taper its asset purchases and expectations are currently for a rise in interest rates later in 2022. President Biden’s recent reappointment of Jerome Powell as Fed chair increases the chances of this outcome. 

The Bank of England defied expectations by not raising rates in November. It cited uncertainty over strength of the labour market post-furlough. Some of these concerns will have been allayed by subsequent data. Given annual CPI inflation is now running at a decade high 4.2%, the final hurdle has probably been cleared for the BoE to hike rates at its next meeting on 16 December. 

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This episode was recorded on 29/11/21

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531

Soaring global energy prices have contributed to inflationary pressures, while economic growth has lost momentum. This has created fears of stagflation. This would be tough for stock markets, but is still only an outside possibility.  

Stagflation happens when inflation pushes prices up faster than wages and profits, forcing consumers and businesses to cut back on expenditure. Demand drops and a downward spiral ensues. 

Previous periods of stagflation, such as those following the oil price shocks in the 1970s have been difficult for stock markets. US stocks performed particularly poorly during the 1973-1982 stagflation period, declining at an annualised rate of -1.5% after inflation, compared to 3.2% gains for the UK equity market. 

However, stagflation is not our central scenario. Strong GDP growth expectations means firms are expected to pass on some costs to consumers without materially affecting demand - so the trade-off between growth and inflation is still favourable for fundamental company earnings. This is the strongest underlying driver for share prices. 

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This episode was recorded on 01/11/2021

Capital at risk. Please remember the value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.

This S&W The Pulse podcast is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said. The views expressed are not necessarily those of the presenter or of Smith & Williamson or any of its affiliates. No reproduction of this podcast may be made in whole or in part for professional or recreational purposes. No action should be taken based on this podcast and we accept no liability if we change your views on any of the subjects mentioned.

Smith & Williamson Investment Management LLP

Authorised and regulated by the Financial Conduct Authority. Registered No 580531