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3rd April 2017
Market Commentary April 2017

market commentary April 2017

Seeing as though Donald Trump was inaugurated as the 45th President of the United States and Theresa May invoked Article 50 of the Lisbon Treaty, markets have been surprisingly calm.

A 2.5% rise for the first three months of 2017 is a good start to what has the potential to be a volatile year. Whether one is looking at politics or stock markets, the world seems increasingly uncertain. Now, don’t get me wrong, the world is, and always has been, full of uncertainty but the current cocktail of risks seems incredibly potent.  

Stock markets seem to be happily glugging down this particular drink because of a weak currency and some loose promise of fiscal stimulus. Whilst the market may enjoy this ‘fiscal fizz’ or ‘old fashioned currency collapse’ at the moment, a bull market of this age is likely to have quite a significant hangover. What is at the forefront of our minds as stewards of your capital is how to avoid the hangover, whilst still enjoying the odd cocktail or two. As such, our emphasis for the management of your money continues to tilt more towards prudent capital preservation rather than rampant capital appreciation. In spite of this, portfolios have continued to make steady progress over the last few months.

Despite all of the well-known risks in the world, the market has moved very little on a day-to-day basis. A marginal appreciation of Sterling hasn’t dented domestic or foreign investors’ appetite for UK Equities, bonds or property.

Government bonds have started to claw back some of the losses from autumn of last year and now stand at a yield of 1.08% for ten year debt. This seems surprising given the increasingly inflationary environment we are in (currently 2.3%) and the protracted period of negotiations we are about to enter with the European Union. Maybe the low yields suggest that bond investors are more concerned about the state of the world than equity investors? Equity investors generally seem to be adopting a panglossian view of the world. This is probably due to the financial apocalypse that many predicted would happen if Trump and Brexit ever happened. They did happen and markets didn’t nosedive (for very long). In fact, markets went up very sharply. Investors seem overly focused on the short term positives from these surprising events (currency and fiscal spend) and do not seem willing to accept that there may be some serious implications for stock markets in the medium term.

Apart from watching everything that the Daily Mail says about Brexit and everything Donald Trump says on Twitter, this quarter has been exceedingly boring. This is no bad thing.

The public often get a romanticised view of stock markets and think of men in loud blazers, gesticulating to one another in front of flashing stock prices, buying and selling things every minute of the day. This does happen to a certain extent, but investing is for the long term and things usually happen very slowly in business. Just because stock prices change every second of the day, doesn’t mean that the worth of a business changes that often. However, this second by second changing of prices can often lead to good opportunities to capitalise on market irrationality.

Looking ahead at the next few months, we have the French elections to consider, EU negotiations and whatever Donald Trump decides to do next. Whilst we are wary of what is going on in the world, we are still finding the opportunities to invest in good quality companies at attractive prices but we will continue to be more defensive in our positioning until we have greater certainty on the aforementioned issues, or prices fall materially.