“ARE WE DONE? OR COULD THERE BE ANOTHER PULLBACK?”

 

Since the 2008/9 banking and credit crisis, equities have come a long way – much of the initial rally was down to quantitative easing and of course, we have little idea how much damage unwinding this facility would have on the market.  There are signs that the US are tapering their needs and others are ruminating over the possibility. The FED have indicated that it could raise rates four times this year, such is the robustness of the US economy.  Speaking personally, I would much rather all major central banks raised their game over QE tapering than deal with inflation through monetary policy. The US has started in a very modest way and Japan has been tapering sensibly since 2014. Many will say that I am in ‘cloud-cuckoo-land’; however, I am less than convinced that the world’s economy would be able to cope with interest rates much higher, such are the wafer-thin margins of profit that currently prevail.

 

INDEX

6th March 2009

3rd April 2018

Percentage gain

DJIA

6626

23644

256%

NASDAQ

1293

6870

431%

FTSE 100

3530

7004

98%

XETRADAX

3666

11994

227%

Hang Seng

11921

30227

153%

NIKKEI

7173

21292

196%

 

*These losses/gains do not allow for the vagaries of the currency markets.

The table above took my breath away somewhat, apart from the FTSE 100, which is not a barometer of the UK’s economy and this index has suffered at the hands of banking stocks, mining and oil shortfalls.  Since the turn of the year the DJIA is down -6.4%, NASDAQ only -0.47%, FTSE 100 -8.8%, DAX -7.2% and the NIKKEI -6.4%. We have seen phenomenal levels of daily volatility, especially in US markets, which I have never experienced in 56 years in the market. Even though geopolitical issues such as Trump’s trade tariff war and serious diplomatic global issues with Russia have been the driving sources of the recent market corrections, may I venture to suggest that valuations in many places, particularly tech stocks are eye-wateringly rich.

The basic ‘fundamentals’ for the world’s economy are still positive and unless geopolitical issues get totally out of control, there is probably no need for a meltdown. Dividends still represent good value and rates have yet to be challenging. After a quiet start M&A activity seems to have regained its appetite. However, with the likes of Amazon, Tesla, Facebook and Twitter have rich valuations and in their own way have incurred the wrath and indignation of Trump, investors, economists, research geeks and the media in varying degrees.  Many of my market contacts tell me that a further 5% correction of global indices is not out of the question.  This could well be a year for stock picking. There is still some good value out there!

 

David Buik  

 

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