Today’s update is written by Gus Dunn, as Gary is away from the office.
Market Update
It was settling to see some relative calm return to markets this week, with a small but welcome recovery since the tumult of the previous few days.
The pullback in markets had many underlying reasons which we explored in the ‘stop press’ update on Tuesday, but given the falls were across pretty much all countries and sectors, irrespective of future prospects, in the absence of any more news some recovery was always likely.
It was reported that a number of US hedge funds, normally canny investors, bought US shares heavily last Monday. The Bank of Japan also sought to undo some of the damage they created in their own (and other) markets with some reassuring words about future policy.
There is a measure of stock market volatility, called the VIX, which not surprisingly is at elevated levels and the highest it has been since Covid. In the run-up to the November US election, it is likely that volatility both up and down will remain a feature. Ultimately it is the direction and health of the global economy that will drive the direction of markets and one set of data from the US is just too little evidence to justify what happened – especially as yesterday’s jobless claims in the US were better than expected and an improvement on the same data last week that was one of the cited causes of the market falls!
David Solomon, CEO at the influential and well-connected US bank, Goldman Sachs, has said that he does not see a US recession, though he goes on to suggest that the Federal Reserve will not be hastened into cutting rates ahead of more consistent data about the economy. In fairness, this is what the Federal Reserve has consistently said and if the markets were trying to bounce them into changing tack they will likely have failed – at least for this week.
Taking a contrary view, JP Morgan thinks there is a 45% chance of a downturn next year. This just reinforces the fact that there is no clear view and that, as ever, things will change and probably quite rapidly.
This week we will look at a few things on Rachel Reeve’s agenda, why the US is so important to all stock markets and the implications for their budget deficit, what is happening in Japan and the outlook/positioning of our portfolios.
So, today’s headlines:
- When America sneezes the World catches a cold
- Insight from LGT Wealth
- The Chancellors choices
- Jitters in Japan
- Summary: Our portfolio positioning
When America sneezes, the world catches a cold
The above well-known phrase originates from just after the 1929 Wall Street Crash and has been in evidence ever since. The central idea is that a problem in the US is an even bigger problem for everyone else. This is one of the reasons we spend a lot of time assessing what is happening there and regularly write about it in our communications.
Continues…
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Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.