Comment and opinion for retail investors in the UK
At times I am reminded of how utterly stupid, even blind to reality, stock market participants can seem to be and how that can have a short term impact on valuations.
Today (Tuesday 13th February) US inflation figures came in a little higher than expected, resulting in an instant sharp sell off as markets worry about delays before interest rates start to come down. In itself this is no surprise, but it is not a useful indicator of what is really happening.
I have not got any interesting ideas to post this week as markets bump along in a mildly optimistic (ex China) holding pattern while central banks try to sound tough and everyone else knows that they will be cutting rates soon.
This is an opportunity for any reader to comment on this post with a question (your full name is not shown if I approve the comment), or email me direct with a request that I address a specific investment portfolio related topic. I will then reserve a future post or posts to address any subject that I decide is of broad interest. I won’t publish replies that relate to individual circumstances, of course and all my guidance is always generic in format.
Over to you!
Assessing the likely direction of stock markets always requires a multi-faceted approach. One needs to be aware of the main macro economic trends within each major geographical region (broadly North America, Europe, the UK, the Asia Pacific region and Japan).
Things like GDP growth levels, interest rates set by central banks and consumer and producer optimism indices will always get a mention in analysts’ and strategists’ presentations, and as context and drivers of market mood, these are important.
However, economics is an inexact ‘science’ and that sort of data is only useful to the extent that it becomes accepted wisdom and will drive market behaviour. For example, a general consensus (which is the best you are ever going to get) that interest rates are going to come down will result in changes in the bond yield curve and that will have an impact on valuations. If rates do not come down after a long wait, then the consensus will change and that will have some sort of impact. This is just an example of a ‘macro’ factor impacting valuations and feeding into asset allocation decisions.
We are now far enough into January to have absorbed enough data and commentary to get a feel for how market participants are expecting 2024 to turn out for the year. In a word, as they say in Lithuanian (implying a few), the mood is nervously optimistic.
Going into a little more detail, here are some pointers for you from the first 3 weeks of 2024. As the year progresses, I will keep you alerted to new data that will help you with asset allocation decisions, profit taking and risk control. As always, you can ask me specific questions or comment if you are a subscriber.
[Read more…] about Midweek musings – some signs of market directionYesterday, I listened to a webinar delivered by Steve Bell, the Chief Economist at Columbia Threadneedle, because although economists as a rule rank no higher than weather forecasters in my ranking of scientific reliability and utility, Steve is a man of mature years, presents vast amounts of data in interesting charts and is modest in offering his prognosis.
Here are some extracts that will give you some extra context for decision making in the immediate future.
Note that the focus was on the 3 main developed market groupings of interest to British investors, being the USA, Europe and the UK. Only passing reference was made to the Asia Pacific markets. The comments were about macro ecomomic trends and therefore applicable to all asset classes, notably both equities and fixed income (bonds).
I recommend keeping in mind that the data supplied is naturally backward looking, although very up to date, and I am only referring to a trend or future direction when I say so.
As is common in early January, markets are drifting, more down than up, as participants get back into gear after the long seasonal break, wait for their analysts to publish 2023 4th quarter data and complete the usual crystal ball gazing. Those analysts are not usually so prompt as your scribe, probably because they need their teams to build deep decks of incomprehensible Powerpoint slides to make their hunches look more convincing!
On that topic, I will be reporting Morningstar’s recent webinar on prospects for European markets in 2024, probably next week. They had a good ration of pretty but not always relevant slides!