3 things we've learnt in November so far – and why it matters

November has been an important month for investors. Plenty of companies release their latest results in the first half of the month, giving an insight into how different corners of the market are faring. We’ve had plenty of economic news too.

In noisy times it can be hard to focus on what matters.

We’ve stripped things back to basics with a simple summary of the most important things we’ve learnt in November – and more importantly, why they matter to investors.

This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. All investments and any income they produce can rise as well as fall in value, so you could get back less than you invest. Past performance is not a guide to the future.

Inflation might have peaked

We heard from the US that inflation isn’t rising as fast as expected across the pond. In the month to October, inflation was running at 7.7% – down from 8.2% the month before.

This came as a very welcome surprise and saw the bruised US markets regain some ground in a short amount of time. Weakening inflation means the Federal Reserve and other central banks can look to stop raising interest rates so aggressively. That makes the outlook for economic growth brighter, because higher interest rates have tended to slow the economy down.

The same pattern didn’t play out in the UK though. Inflation of 11.1% was worse than expected. This was mainly thanks to soaring food and energy prices. One of the main reasons things differ from the US is because the UK and Europe rely far more on imported gas and oil.

However, there’s hope that inflation might have now peaked. This is important. It’s widely believed that inflation’s going to start coming down, but the trajectory and speed of this is what’s hard to map.

With the UK’s economy slowing (which we also heard about in November), people could well be starting to spend less, which could take some of the heat out of prices. Lower inflation means companies’ bills could start to come down, which would make profit generation easier.

At the same time, a slowing economy caused by higher rates is likely to dent demand for some corners of the economy. Companies that rely on people spending on non-essential items could come under pressure soon.

Inflation – has it peaked and what could be next for investors?

We found the tech giants’ spending limit

Both Amazon and Meta came out in November and outlined plans to cut tens of thousands of staff each. This flies in the face of the traditional ‘strength’ of tech companies, which says that their growth is untouchable and their pockets are endlessly deep.

In Amazon’s case, the enormous amount of money thrown at expansion during the e-commerce boom of the pandemic has come back to bite it. A highly uncertain economic outlook and soaring costs means tough decisions are being made to fill the $3bn-per-quarter black hole it finds itself lugging around.

Meta’s layoffs are also linked to a weakening economy. The group’s cost base has swelled at a time when its advertising revenues, which are its bread and butter, are slowing. The group’s highly expensive and unproven foray into the Metaverse is also draining resources.

These developments are important to take note of. They serve as a reminder for investors to truly understand what’s going on with a company, and to assess how a weakening economy might affect it. Just because a company is enormous doesn’t mean it’s too mature to go through troublesome times and this can result in shock developments.

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Windfall taxes gathered steam

The autumn statement from the government included a temporary 45% levy on electricity generators. The energy profits levy (which is already charged on companies like oil and gas majors) increased from 25% to 35%. This comes as the government desperately tries to raise more money to fix the UK’s struggling finances. But it’s also in response to growing calls that companies benefitting from soaring energy prices should pay taxes on those profits.

This development matters because it paves the way for even heftier windfall taxes on energy companies, like the oil and gas majors, to come through in the future.

Windfall taxes will dent the profits of these companies, and increases the importance of renewable energy as a revenue source over the long term. Some argue that taxing in this way limits their ability to invest in renewable energy. But either way, this news will separate the strong from the weak in the industry, and has increased volatility in the sector.

Things to remember

The economy and markets are different beasts, but it’s important to understand how economic news might affect your investments.

Do your research on individual companies, look at current and future prospects, regularly review your investments and if you’re at all unsure, seek advice. Let us help you by signing up to our latest research so you can make better informed decisions.

Political changes can impact share prices and future prospects, so it could now be a good time to have a look and understand which investments might be more exposed to recent developments.

Investing in individual companies isn’t right for everyone – it’s higher risk as your investment is dependent on the fate of that company. If a company fails, you risk losing your whole investment. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

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