Welcome to the first in a new series of monthly Market Commentaries.
The aim of these updates is not to make bold predictions about where to invest your money but more to give you a brief, simple overview of what is happening in the world economy right now and how it may be affecting your investment portfolio.
I want you to be informed and to know why your investments may be up or down.
So let’s get started.
State of play – the main world stock market indexes
| Region | Index | Last Month Performance | Last 12 Months Performance |
| UK | FTSE 100 | 0.07% | -6.16% |
| US | S&P 500 | -3.31% | 1.83% |
| Germany | DAX | -1.20% | -14.38% |
| Hong Kong (Asia) | Hang Seng | 3.05% | -12.88% |
Data sourced from Google Finance and up to 23/11/2018.
What’s been going on?
During October and November, the UK, Europe and the US saw their biggest stock market falls for some time. The UK and Europe have already erased all gains over the year and the US are close to doing the same.
Clearly the ongoing Brexit negotiations are having an impact in the UK and EU markets with the pound rising, whenever it appears we are close to a deal and then falling if the deal doesn’t look secure.
A falling pound has supported the larger UK companies as they are international companies. Profits earned abroad using a stronger currency are worth more when converted back into a weaker pound.
Much of the Brexit uncertainty appears priced into the UK and EU markets. What is having more of a major impact on global markets is US interest rates.
If you remember back to the 2008 financial crises, the central banks around the world lowered interest rates to the floor and started printing A LOT of money. These two policies have had the biggest impact on ensuring stock markets have been on one of the longest gains in history.
But now is the time the US want to start reversing this policy. They want to suck some of this money back out of the economy through stopping the money printing and raising interest rates.
The rate rises we have already seen in the US have had a big effect on the Asian and emerging market areas. Most of these countries debts are denominated in dollars and therefore as the dollar strengthens (through interest rate rises) their debt repayments become more expensive.
So if the US Federal Reserve does decide to increase interest rates too high too soon then this could be the thing that spooks markets the most. It has certainly spooked them recently.
On the other hand. US President Trump doesn’t really want to see increased rates and loves debt, so it will be interesting to see if he can influence the US Fed, especially now he has lost his grip on some power following the US midterm elections.
The other major contributor to the recent stock market falls, particularly in the US is Apple and other tech stocks. For some time they have been running at such huge valuations that, as soon as there is the slightest bit of bad news for one of these companies coupled together with general stock market feeling around US interest rates, these stocks suffer badly.
Apple hit a trillion dollar valuation around August time. Since then Apple stock has fallen more than 22%! Lower demand forecasts and issues around the US/China trade war have not helped Apple.
The problem is because Apple as a company is so big and a massive part of the US stock market, a bad day for Apple affects the whole stock market!
A POINT TO NOTE:
90% of your investment return is driven by your asset allocation (the mix of equities, bonds, property and cash etc) not the stock or manager you pick. If you would like help making sure you are using the right mix please contact us.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
