Perceived wisdom always suggested that summer months were traditionally a quiet period for financial markets. The experience that we have of investing for our clients for over 20 years provides clear evidence that the suggested ‘quiet period’ was incorrect, and this year is reinforcing the view that summer is often quite volatile across financial markets.

The most recent bout of volatility has been triggered by a combination of growing concerns over the outlook for US and global economic growth; worries that central banks are cutting interest rates too late, and that a souring economic environment could lead to lower corporate profits and a rise in insolvencies.

While we are always alert to anything that could negatively impact our client portfolios, we are not sounding the alarm yet. Our views have not changed materially over the course of this year so far and we have aimed for both balance and diversification across our investment strategies.

At the start of 2024, the consensus view was that geopolitical events would provide challenges for investors this year. While we sympathised somewhat with this view, we mostly disagreed. Our expectation was that although global events would add to the volatility experienced throughout the ‘turbulent twenties’, both global equity and fixed interest markets would make progress this year leading to a broadly positive experience for our client portfolios.

So far, our view has been sensible. Markets have made progress, even during one of the busiest years in history for elections. The ongoing war in Ukraine and the deterioration of relations between global powers have not yet impacted financial markets. There’s evidence that the most important lesson for investors currently is to ignore the ‘noise’ and focus on the quality of the assets you’re buying, the price you’re paying and be patient. Could political change create problems for investors?

Currently the most frequently asked question from our clients is ‘whether current political movements will develop throughout the next few months - and will this create a speed bump for investors?’ The answer is ‘possibly’.

Uncertainty over how the new Labour government will balance its spending plans with any rise in tax is front-and-centre in the minds of our clients - as well as those of our international creditors, who we rely on to keep financing our government’s spending. We believe that this will create nervousness in parts of the government bond market, particularly with longer-maturity bonds, but should not detract from a positive outlook for attractively valued UK equities or corporate bonds.

Following political elections in France, the UK, greater focus will undoubtedly be drawn towards the US, as the presidential election in November draws closer.

There hasn’t yet been a major impact across financial assets, even if there has been a mild boost in investors’ perception of equities (Trump will aim for lower corporate tax rates, boosting earnings) and a more negative tone in longer-maturity government bonds (there will be even less government revenue to offset government spending).

In short, while the political events unfolding around us are contributing towards our balanced, diversified and ‘open-minded’ approach, they’re not driving our asset allocation decisions or structural investment biases.

Much more important to our portfolio construction are the ‘five key pillars’ of our asset allocation framework. Our views are:

* The global economy - will continue to grow at a solid, but unspectacular pace; a recession is possible, but it is unlikely to be imminent.

* Inflation - pressures are continuing to subside, if not at the pace we would all like

* Interest rates - subsiding inflationary pressures will lead to UK and US central banks cutting rates in the next few months

* Corporate earnings – interest rate cuts should support bond markets, where yields are sensible - and prevent major issues in equity markets, where valuations are broadly fair – and we expect growth in corporate profits

 * Market valuations and investor positioning - investor sentiment is a little complacent in some places, such as US equities, but not so excessive as to lead to harmful sell-offs in asset markets in the coming months.

While we have confidence that the ‘base case’ we outlined at the start of the year remains likely, we will continue with our ‘cautiously optimistic’ stance throughout the second half of 2024.

Tim Wishart is head of strategy and development at Adam and Company