The rally in the first quarter lifted the US and other markets to a six-month high, while sovereign bond prices have mirrored investors’ renewed confidence by tumbling from their recent two-year peak. The uber-pessimism of the fourth quarter of 2018 has turned into fresh hope that gains can be made when trade wars and Brexit have been pushed out of the way.
Around 100,000 final salary pension scheme members traded in a guaranteed income in retirement for a cash lump sum last year, according to the Financial Conduct Authority (FCA).
For many, the motivation is that a transfer out of an employer’s final salary scheme allows them to take advantage of the rule allowing people aged 55 and over to take 25% of the fund tax-free – a tidy sum when the average transfer exceeds £250,000.
Stockmarkets around the world enjoyed their strongest start to a year for three decades. The S&P 500 index rose 7.8% and 3% in January and February respectively, the best first two months of any year since 1991. That run was broken in the first week of March, as stockmarkets fell on disappointing economic news, particularly US jobs data, downward growth forecasts from the OECD, and the announcement that the European Central Bank feels the need to launch fresh stimulus.
Inheritance tax (IHT), which is levied at 40% on assets over and above the first £325,000 in an estate, is well worth avoiding.
One avoidance strategy is to invest in shares traded on the Alternative Investment Market (Aim), as the value of qualifying Aim shares can be passed on free of IHT once you have held them for two years.
Stockmarkets surged at the start of the year as they bounced back from their December lows. Progress through February has been volatile, but the upward trend continues, despite major macro concerns.
Commodity prices across the spectrum are down at least 20% from their 52-week highs, but could rebound sharply in 2019, if concern over slowing economic growth and the trade war between the US and China lifts.
Just one piece of encouraging economic news – the December US jobs report – was all it took to change the market’s mood and send stocks higher in the first few days of the New Year; but this recovery could easily prove a brief respite.
In recent years, the performance of growth stocks such as technology, consumer discretionary, materials and industrials has eclipsed the rest of the equity market. In fact, growth sectors have outperformed their defensive counterparts, including consumer staples, telecoms, healthcare and utilities, by 40% since the start of the bull run in 2009.
It would be easy to imagine that the US/China trade war and the US Federal Reserve’s resolve to tighten monetary policy, which have been the two big fears hanging over the US stock market throughout 2018, are reaching some sort of stasis. The market certainly rejoiced when Fed chairman Jay Powell made the dovish comment that interest rates are “just below” the range of rates considered neutral. The Dow Jones Industrial Average index shot up by 600 points in one session, its best single-day gain since March.
This article was written in early November for the December 2018 print edition of Money Observer. Market data and share prices are likely to have since changed.