Its Not Harry

Comment and opinion for retail investors in the UK

Markets

YAP – markets back on track?

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The market trend that I have previously called ‘benign’ was set back by a sharp but short correction in early August and what looks almost like an echo of that in early September. So far we have not had the same this month. In terms of global market indices, the low points of those dips look to be more or less in line with the trend in market lows for the last couple of years as does the current high valuation.

As we know the upward momentum is not evenly strong across the globe with much of it having come until quite recently from the so-called Mag 7 stocks, although in truth not all of the chosen 7 have done that well.

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YAP – Proof of the pudding?

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Recent volatility in global stock markets has, as ever, attracted media attention, because it mainly involves sell-offs. I thought it would be useful to see how different types of assets, such as we may actually own, have performed since the first hint of nervousness at the start of August.

To do that I am going to use short term data, obviously. I need to remind readers that short term data is NEVER a useful indication of relative OR absolute future performance. It can also be down right misleading. The data I am using is over one month ending about now, so it starts AFTER the August sell off. Relative to that starting point performance it will look much better that if I had, for example, been able to use 6 week data.

My objective is only to observe the direction of returns from various funds during this period of nervousness, leading to exaggerated volatilty. So one month data is ideal, specifically for this objective.

Does diversification actually work is the sort of sell-off we have seen lately?

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YAP – markets sell-off

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The sharp sell-off in global stock markets may end up being a very temporary event, but I thought subscribers might appreciate a comment before I leave for ‘riot-torn’ England. The latter picture of nationwide strife would be my conclusion based on the BBC news website, although not from others.

I am aware that the Japanese market has bounced back strongly this morning, but that is not enough news to form any conclusions about what will happen next in other markets.

What I can say is that the sell off we have seen has very little to do with fundamentals, except that tech stocks, notably those connected with AI, had become overvalued. That I have already warned about a few weeks back.

Have we just spotted a black swan? I don’t think so. More a question of the ducks taking off en masse at the shadow of what could be an eagle.

The only evidence that there is any sort of slowdown in the US economy is weaker numbers on employment and the strong numbers before were reported to be upsetting the Federal Reserve and keeping interest rates higher!

The weaker numbers may help the bank make a decision to lower interest rates sooner or even by more but predicting a global recession (which is what markets are said by some to be doing) from such limited data is plain foolish.

It fits rather well with my recent piece on behavioural finance that the FT suggests that markets are at risk of creating a self-fulfilling event by imaging a recession that has not yet happened. Nothing to fear except fear itself etc…..

The next few days will give us more idea of what the ongoing permanent market trend will be, but I see the macro climate as remaining generally benign. If anything, it just got better for fixed income. I hope readers already took profits from their high flying technology funds on the back of my previous observations.

Definitely not a time to panic but a good example of how markets that have run up strongly over months will correct in hours when there is a collective psychological meltdown. If you have a lot of profit on the table, you are very likely to rush to bank it at the slightest hint of bad news and the first to sell gets the best price, so get a move on! It’s just human nature.

Deep Dive – July 2024

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Scores on the doors

As advertised, I thought it would be useful to take a look at the first half of 2024 and, after the UK election results which are the most significant ‘macro’ event for UK investors at this time, put out some ideas about asset allocation, where to re-invest those hefty tech fund gains and in general assist readers who are undertaking regular portfolio reviews, or maybe are even still building up their asset base from cash.

The elections in France have also been the subject of much media interest, but I am not sure the result will have much impact on European markets, and as I write this article, it is not really clear how a new French government will be formed. The significance is perhaps more about confidence in the Euro, but I never forget an old, only half jesting, comment that the Euro is only the New Deutschmark!

Some data to kick off

This table covers as many asset class categorisations as I think are relevant to my subscribers and in offering benchmark return data, I have not resticted example returns to a published market index or tracker ETFs, but in many cases shown an actual fund that I know is owned by many readers and would be considered a good market example, widely owned by many retail investors.

If you are interested in only what the main global indices would have returned, your data is in fact encapsulated in a ready made mix in the Vanguard Lifestrategy fund information supplied.

I have also this time added the results from the AFI model portfolios, which are maintained by a panel of the larger IFA/wealth manager groups in conjunction with Financial Express (the company behind Trustnet), the FTSE benchmarks that discretionary fund managers ought to be supplying to clients and also my own GIA account results. I have even left space for you put in yours, which you can get from a portfolio X-Ray!

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Yap – an anything else is better election wish

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It hard not to be surprised when one sees that a drift to the right in France is seen as a big negative by investors and many City commentators are saying that a Labour Landslide in the UK would restore Britain’s ‘safe haven’ status in the world.

Will the UK equity market return to leading the EMEA region, just as we have the Paris Olympics?

In fact, it is reported that foreign money is already flowing into UK markets in anticipation of the election result. The UK may well now have returned to looking safer than the rest of Europe to US investors.

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YAP – into extra time!

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More time needed to get results

The main headline I was gifted by the efforts of the England football team last evening!

I propose to write the Deep Dive monthly commentary as an assessment of markets over the first half of the year (a brief one – I am not one to waste your time on history) and more usefully, to look forward to the rest of the year with some pointers on asset allocation and risks.

To do that, I need to have resources available that are not going to be published for a week or two yet, so I will defer publication of my article until the second or possibly third week of July.

In the meantime, here is an anecdotal snippet.

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