What a start to the year. Last week saw equity markets shrug off the brief shutdown of the US government and worries of a trade war to push prices even higher. Expectations of equity volatility slipped back after a slight increase last week. The US dollar weakened on the back of comments from the US treasury secretary whilst the pound moved over USD1.40 for the first time since the vote to leave the European Union. And oil moved up to its highest level for three years.
There are still lots of reasons to be cheerful. Everyone seems to be talking about Goldilocks, low inflation and the synchronisation of global growth. Chuck into the mix upward revisions to earnings forecasts, low bonds yields and accommodative central bank policies and no wonder markets are going gangbusters. In fact, suggesting that anything bad could happen feels positively churlish. After all, Bank of America Merrill Lynch report that USD32.2 billion was invested into equities in the week to 24 January alone. That’s huge amount of money – apparently an all time record.
The problem is, though, when you try to pin people down on what could bring it all to a juddering halt then it all gets a bit fluffy. We don’t claim, either, to know what it could be. But what we do know is that we have now seen the longest period since 1929 when the MSCI World Index has not seen a correction of over 5%. History is not, of course, necessarily a guide to the future and this doesn’t mean a correction is coming. And, even if it did, a 5% correction would only take us back to where we were at the beginning of the year.
We much prefer to buy things when the news is bad, nobody wants to own them and when they are cheap. Buying things when they are expensive, the news is all good and everything is expensive makes us feel uncomfortable. The Number 14 bus to work has an automated announcement that says, “Please hold on, the bus is about to move.” The problem is, it always says this shortly after the bus has lurched away from the curb. Well, the warnings are there in markets. So please hold tight.
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