Market recovery

What goes up must come down is the old age, and the inverse then, must also be true. Helping give us confidence to make those difficult decisions when markets are crashing to stay cool headed and help protect our financial future by making better decisions with less stress today.

In March, many of my clients would confirm I was talking about the opportunity unfolding to access attractive valuations from the markets. Those who acted are now seeing returns of almost 10% for lower risk clients and a little over 20% for those those with a more adventurous attitude to their investing.

Having moved so much so quickly, on really, not that much new news can partly be explained as an over reaction to the downside at the start of this corona virus outbreak, but as someone who hasn’t been too concerned with the pandemic backdrop that we’ve been living in in the last few months as readers of my blog and those who know me will confirm, this sharp rally has made me pause to reflect.

After delving deeper, I wanted to share some insights.

Technical

When looking at the FTSE 100 index it could appear, that short term resistance to further price rises is upon us. There are 3 indicators in particular that I am paying close attention to. These are far too dull to talk about in depth here but are giving me reason to be cautious in the short term.

Value

The relative valuation of the index has moved markedly from the March lows and may be approaching a level that could be deemed fair value – still offering plenty of opportunity for growth in the long term but looking much shorter term, we have to start thinking a little more cautiously.

News Flow

Whilst we can now gather in small group there are still big question marks as to how we exist this current paradigm. Including:

  • Fixing the Private rented market to stave off an uptick in evictions
  • Vaccination to protect society when the hundreds of thousands of workers go back to the offices in London, and other capitals across Europe
  • Discretionary spending in the form of tourism, bars restaurant theme parks etc

Articles this weekend give rise to speculation the dreaded “R” number is rising from 0.5 back toward 1, so back to “Hot” on the Nandos scale then?

Global Dislocation

When looking around different countries stock markets we se the US market, the S&P 500 has performed much better than the FTSE 100 and other indices around the world. Upon further research this isn’t because the US company as a whole is performing better (far from it in my opinion despite the recent jobs numbers)  it is more so to do with the make up of the index.

The majority of the performance of the US stock market has in fact come from 5 companies:

Facebook
Amazon
Apple
Microsoft
Netflix
Google

These “FAAMNG” stocks have complete recovered from the crash whereas the bulk of the us market has lagged behind.

 

This isn’t exactly surprising given their offerings are all we can really consume after our essential spending these days, but does highlight that this isn’t a broader market rise, which is a cause for concern as it makes it harder to sustain these rallies. Now we know this dynamic we also can assume that the UK wont simply ‘catch up’ to the US, similarly that this isn’t a ‘Brexit effect’ issue.

We are still optimistic of stock markets over the long term but can expect some tougher times ahead as we wait and see to see if economics, societies and companies can catch up to this positive sentiment we have seen thus far.