Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

And on it goes. The bull market that paused for a few months last summer, has picked up pace again since the autumn, fuelled by interest rate cut hopes and a surprisingly buoyant economy.

The everywhere rally

US stocks enjoyed their best weekly gain in three months last week. The S&P 500 was up 2.3% and Nasdaq rose by 2.9%. The market is up by more than a quarter since October and by nearly a half since the end of the 2022 bear market.

And it’s not just a US phenomenon. Japan was up by 5.6% last week, European shares rose again and even the out of favour UK is closing in on its all-time high of just above 8,000.

The major driver worldwide is interest rates. Both the Federal Reserve and the Bank of England left rates unchanged last week but provided a broad hint that the turn in the cycle is imminent. Jerome Powell at the Fed confirmed that the US central bank is hoping to cut rates three times this year. Andrew Bailey at the Bank of England said the market was right to expect more than one cut over here too.

In Japan, interest rates actually rose last week but the Bank of Japan was careful to point out that the move back above zero for the first time in 17 years is not a signal that rates will move sharply higher. In Switzerland, rates came down by a quarter point, leading the move lower among the world’s leading central banks.

Income while it lasts

The expectation that rates are about to head lower has focused investors minds on locking in higher yields while they can. That’s been particularly noticeable in the corporate bond market where inflows are higher than they have been since before the pandemic.

Investors’ enthusiasm for investment grade and high yield, or so-called junk, bonds has pushed those markets to new highs. In particular the premium that investors demand to compensate them for the extra default risk that comes with corporate bonds has shrivelled to historically low levels.

The spread between the yield on safe government bonds and riskier corporate bonds fell last week to 0.94% for safer investment grade bonds and 3.14% for high yielders, where the risk of failure is greater. In December, the equivalent yields were 1.04% and 3.39%.

UK back in focus

One of the noticeable absentees from the market rally in recent months has been the UK. In fact, the UK has underperformed badly ever since 2016 when the Brexit vote appeared to permanently change perceptions of the UK economy and market.

In the past few weeks, however, investors seem to be focused on the historically wide valuation gap between the UK and other markets like the US. In a world where markets look increasingly expensive, the UK is looking increasingly cheap at a near 50% valuation discount to the US.

The debate about whether this is justified by poorer prospects is ongoing. At the market and sector level, the UK has suffered from an absence of technology and other growth stocks in favour of out of favour value sectors like banks, energy and mining. It also has fewer of the really big shares that are attracting investors today. But at the stock level, the discounts are less obvious and more explainable by lower growth prospects.

Happy birthday to the mutual fund

And finally, it’s time for a (muted) celebration. The mutual fund was invented a hundred years ago this week. For the first time in 1924, investors could gain access to a diversified portfolio of shares and move in and out of their transparent investment fund at the asset value of the underlying holdings.

But the birthday comes at a tricky time for mutual funds. They face growing competition from more flexible and usually cheaper alternatives in the form of ETFs, which have quadrupled in assets under management in the past 10 years. Mutual funds brought investing to the masses. But they will have to adapt to flourish for another 100 years in a fast-changing investment landscape.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Please be aware that past performance is not a reliable guide indicator of future returns. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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