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YAP – A mini-inflection point?
As a young person with a gun once again makes the news headlines again in the USA, I want to draw to your attention away from politics to 2 recent observations that I thought were significant amongst the ever-flowing tide of financial market news that I see every week. Taken together, they may well be flagging a change in equity market leadership, with value investing looking more attractive henceforth.
- The first observation was that in a recent sell off (as perceived) of US markets, in fact only the high growth, AI story driven stocks sold off – the main market was flat. The large market cap weighting of the big tech firms of course significantly influences the indices that include such stocks.
- The second was that what should be very good news for growth stocks: the more and more definite statements that inflation is largely conquered (or let’s be honest, has come down for factors nothing to do with central bank actions) and that as a consequence, the Fed in the US can lower interest rates soon, has had virtually no impact on markets. It is suggested that this news is already in the price, as it were, so the only news on inflation and interest rates that might move markets (down) would the (bad) news that rates reductions are deferred again.
Taken together, those statements hint that the recent strong rally in growth stocks, especially those that can in any way be connected to AI, has run out of steam.
Skimming off profits from the technology sector is something you may well have already been doing. If not, now is the time to seriously think about it, I suggest.
Personally, I am somewhat convinced by the minority of commentators who say that the benefits of AI are more imagined than real, in terms of improved eceonomic performance. We could be seeing another ‘millenium bug’ con trick (an effective one, for sure) from the robber barons of the 21st century.
Watching Brief – March 2024
Reflections
I have been thinking about making some changes and below I outline my plans.
Time flies….
This web site has now been fully up and running for 6 years. For subscribers, it includes 101 permanent articles and 447 blog posts. It now represents a fairly significant reference resource and although it is essentially updated now by a rolling blog, the WordPress search facility is usually good enough to access several articles on a range of topics that might be of interest to retail investors.
A small element of the content is not 100% up to date and at some stage I will do some weeding and a bit of update editing, but I don’t think there is anything that could be misleading.
I myself often refer back to posts I wrote 12 months or 24 months ago and am proud to say that I get more right than wrong when looking forward and I am also satisfied that I regularly repeat the ‘golden rules’ that investors ought to always bear in mind.
Here are just a couple of examples of content that I think is ‘evergreen’. Some newer subscribers may come to these posts for the first time.
- The article on the site ‘10+ top tips for investors’ (under the Real World tab/menu) might even be worth copying to a document file and printing as an aide-memoire!
- If you like fables with a little satirical humour, you might find my story about market timing called ‘A fable for investors’ which I wrote in March 2020 to be an amusing if slightly testing read over a cup of coffee. Those of you who were able to buy assets from cash reserves in the dark days of 2022 will recognise who you are in the family of 6 very different people featured in the tale.
Midweek Musings – Seasons Greetings!
It looks we may be in for a rather late Santa Claus rally in the UK market with better than expected inflation numbers just published.
I was amused to see someone in government or the Bank of England saying that workers would need to accept lower pay rises before the central bank interest rate would come down. With many fixed rate mortgages at low rates coming to an end now, I can imagine many a home owner adopting the mirror position and unions also saying that as long as interest rates remain high, workers need large pay rises!
The sharper than expected drop in inflation without a large rise in umemployment, which is what is also happening in other major economies, further confirms that the bout of infaltion which is now tailing off was driven by supply side factors and central banks are likely to cause uneccesary recessions if they don’t take their foot of the brake and start a little stimulus before long.
Markets, I suspect, do not believe that the hawks on central banks committees are any more in the majority, so are anticipating rate cuts in 2024. The risk to equities is in fact the aforementioned potential recessions.
Fixed income assets are for that reason useful insurance at the moment – in fact something of a one-way bet.
My January monthly briefing will be the next publication from me, when I will look back briefly on 2023 and do some crystal ball gazing for 2024, like a true Janus.
Until then, I wish all my readers a peaceful, healthy and happy fortnight over the holiday season. And a nice fat portfolio valuation for December 31st!
Midweek Musings – Lazy days of summer
Long siesta?
With parts of the world experiencing record high temperatures, working probably seems like something best avoided unless you are in a pleasant air-conditioned location. Probably most of the people looking after our money do enjoy that luxury, so the markets won’t be grinding to a halt. I suppose some power outages may be reported in some places and forest fires may threaten some large cities, but I don’t see the weather as a direct threat to the daily operation of investment markets.
Midweek Musings – Spanish Inquisition?
Friday is not mid-week, I know. Apologies if you were wondering why there was no post on Wednesday.
I saw this week a headline in the FT that ran: Investors Should Expect the Unexpected. How absurd.
Most readers will know why nobody expects the Spanish Inquisition. If not, ask Google, Bing or ChatGPT. It’s the meme from 1970’s BBC TV that you want, not 15th century religious history.
However in spite of the FT’s urging, investors cannot expect the unexpected, because if they did, it would have become the expected. You see the difficulty?
I can’t know what the FT wrote about this because I don’t pay their exorbitant subscription, so this is a bit of a rant (with a purpose).
Crystal ball gazing
The better point to make is that the next direction of the market is not often indicated by the easily available headline ‘facts’ or even the current pricing trend.
The next inflection in a given asset market is quite often not at all unexpected to someone who carefully reads relevant news and economic, financial and trading data. Such a person will also have to understand their personal psychological biases and how to resist them.
Furthermore, taking decisions in anticipation of what is going to be called later the ‘unexpected’ , but was in fact something entirely predictable (like say the bursting of the dot com bubble) is difficult because an investor who is sufficiently thorough will always be ahead of the market and will see short term underperformance or even losses (if the foresight prompts purchases rather than sales).
Knowing what is going to happen is not so difficult, but judging the timing is more tricky.
According to the Bible, it took 40 years for the legendary Jewish prophet Jeremiah to be proved right big time. In the meantime he was pretty unpopular. I have no wish to be thrown down a well nor for my readers to wait 40 years to see that I was right all along. I do think however that one can see what the market does not want to acknowldege maybe 6 months to 2 years ahead.
Give us another example, I can hear you thinking!
I already gave one: dotcom stocks in 1999 – I had none in client portfolios built on my recommendations. Another: the collapse of gilt and fixed income prices in early 2022. For now: problems coming out of China and that region.
Those are all worries. On the plus side: current undervaluation of UK shares outside the FTSE 100.
I am not obliged to give FCA risk warnings, being a mere blogger, so will end with a biblical one instead: Beware of false prophets!
I don’t really know the future, of course. I just make an educated assessment and I am wrong at times.