How much difference a week makes. So many column inches wasted on the (almost) fact that the US Economy was back on track. Rates were looking to rise, markets were worded up and we could take the first timid steps towards serious global growth. Now all those column inches are only good for wrapping fish and we’re all back to where we started.
How it was for a few years leading up to recent weeks:
US Economy not great
QE is our life support. Low rates are our oxygen. Raise them and we’ll all die.
Fed stimulates markets and everything keeps going up.
Low interest rates are the only thing keeping us alive.
Good data is bad, we need cheap funny money and lots of it. Good data means QE may stop & rates rise. That old BMW in the garage still has a few payments left on it.
This was the state of play right before Friday:
US Markets like low rates because it’s stimulating asset prices.
Fed is weaning them off it by pointing to strong data
US Economy good! Data says so. Keep buying stocks
Higher interest rates are ok because at least it means economy is strong(ish)
Good data is good, we don’t need funny money stimulating this market. We have a strong economy!! That new BMW looks pretty reasonable.
Then Friday Nonfarm Payrolls came out and looked like this:
Weakest jobs growth numbers since 2010 and past revisions were down
So now here we are at the moment:
US data not great and trending down (see above)
Fed pointing to strong data to raise rates now has a bit of an issue.
No rate rise soon. Nothing changes. We still need low rates to support the market.
Bad data is good, keep carefully buying things. Maybe hold off on that new BMW until we figure out what’s going on with #Brexit
I can’t make it any simpler than that and I won’t compete with smarter commentators than me on all the fundamentals than to suggest that the US market will probably push ahead now for the old reasons as opposed to the new reasons.
Volatility
Volatility is still our worst enemy, and the number of event risks there are ahead is a little scary. (Remember index funds & ETFs are triggered to switch to cash on volatility spikes)
Here’s someone I follow who tracks patterns in time related to market movements. Apparently the Volatility Index changes its socks every 9 weeks.
I showed this to my wife and she thinks it means Volatility is about to go back up. Who am I to argue?
Re the remainder of June- beware, beware and, to be safe, beware. There is so much interest rate and currency risk ahead that one tremor could send shockwaves through global markets. I’ll leave it to general smart & good-guy Chris Weston of IG Markets who put a great article together on what to watch out for:
In summary- Brexit, Presidential nominations, RBA, Fed, BoJ, ECB. All have something substantial going on in the next few weeks.
Thanks very much, Chris. Well written
Locally RBA have some easy questions ahead of them. They reluctantly cut rates at their last meeting, and the Fed did most of the legwork in dropping the AUD by talking about US rate rises. Then our strong GDP numbers came out last week, boosted mostly by exports. Put any thoughts of a cut on Tuesday out of your mind with predictions now at an 8% chance of a cut.
Now for some fun stuff
S&P Global Head of Commodities (and fast becoming a favourite follow of mine) Jodie Gunzberg, has this regarding the recent commodity rally being indicative of a bottom in the commodity space.
Again, who am I to argue?
So if there’s a few stocks you’ve had around that look unloved maybe hold tight for a little while because according to this the bottom in the cycle is behind us. Stocks in the mining and mining services spaces could have found their floor and I’ll be looking through for some value in those spaces this week.
Finally, if anyone out there speaks Greek I need help translating this. I know one of these jets belongs to Francois Hollande, one belongs to Angela Merkel and one belongs to Iron Maiden.
But I can’t figure out which is which…
Stay safe out there and all the best,
James
Something for investors too busy to watch the screens all day
Reiterating previous comments about the managed accounts which we offer which suit all types of investors looking for an alternative to having to look at your portfolio every day. They’re ideal for investors looking to still have their money actively managed without having to be an expert stock picker. The Growth Portfolio is for people seeking higher returns for higher risk.
Here are the results and if you have any questions about our investment methodologies or costs please let me know.
This is the Growth versus the ASX 200:
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