Last week saw a continuation of the more relaxed mood among investors. Most equity markets moved slightly higher and volatility remained low. Interestingly, there seems to be a change of tone among the more bearish market commentators. They are not necessarily turning bullish but the ‘hold on for now despite the valuations’ theme seems more prevalent.
Last week also saw Prime Minister Theresa May notify the European Union that the UK will be leaving. As expected, there was little impact on markets. The tone of the political rhetoric has, if anything calmed down. For how long that lasts, though, remains to be seen. We still prefer to focus on the real issues facing the UK economy and that, beyond peradventure, leaves us continuing to prefer equities over bonds. As we mentioned last week, we are reviewing our positioning within the UK equity market in order to seek the best opportunities the coming months may present.
The pullbacks that we have warned of have singularly failed to appear. So does this make us more relaxed or more nervous? As things stand, we do not feel more nervous. There are things out there that could rock the boat – and they remain the same things we have flagged up before. Chinese macro data. Central bank actions. And geopolitics. So far, though, none of these show signs of significant deterioration. That said, we are not entirely relaxed either. There seems to be a degree of complacency creeping in and this is always a sign to be on your guard. Being prudent when many asset prices are stretched is never a bad thing.
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