Making sense of this crazy world
War, what war?
Markets have largely shrugged off the potential impact of a protracted conflict in the Middle East and, in some cases, stocks are positively booming. Difficult to believe, isn’t it, with such negative news flows, although Trump has said it could be over in a week! The latest developments suggest it won’t be.
Earnings have surprised on the upside, and whilst there are winners and losers out there, overall sentiment has been buoyant.
Market sentiment of late has been undoubtedly helped by another of Trump’s extensions to a deadline, and investors seemingly were looking beyond the current conflict. Brent crude oil dropped more than 10% to below $100 a barrel for the first time since late April on the news.
There is also a case to suggest that uncertainty and volatility are so ingrained in our everyday psyche now that it has created a form of malaise amongst investors. All this comes at a time when inflation is expected to rise, with a knock-on effect for interest rates. The question is, when will this start to feed into economies? There are signs everywhere!
On analysis, the concern is that in the S&P 500, the uplift in returns is concentrated in just a handful of technology stocks.
Reality has returned for markets over the last couple of days as the oil price has rebounded and Asian stocks fell from a record high, following the news that the US hit Iranian targets in response to attacks on Navy warships.
Uncertainty reigns in the UK. The local elections are reinforcing the dissatisfaction with the Labour party, and the gilt market doesn’t like the uncertainty that comes with this territory. Property prices aren’t as buoyant as expected, there is no longer a mortgage war whereby lenders are driving down rates to compete for market share and, to boot, the government’s borrowing costs are now the highest since 1998.
Outside of the UK, opportunities present themselves.
This week’s content:
- Investor confidence in the UK remains, but it’s waning
- UK gilt markets see yields and borrowing cost rise
- Fatigue is setting in
- US markets driven up by a handful of stocks
- Emerging market excitement
- Samsung capitalises at $1 trillion
- Nothing ever stays the same
- Global Equity Performance
- Conclusion
Investor confidence in the UK remains, but it’s waning
Not helped by the local elections, of course, with questions being posed about how long the current leadership can last. Markets-wise, UK retail investors still seem to have some confidence in the UK economy, but this is beginning to wane.
The possibility of higher inflation comes as rising political risks in the UK also unsettle investors. The election results so far don’t look good for Labour, and the fear is that this could pave the way for a further ‘shift to the left’ and a loosening in the government’s fiscal rules, which investors have warned against.
Dan Moczulski, UK Managing Director at e-Toro, said the data shows “UK investors are becoming more selective and more discerning”.
He continued: “They are able to separate confidence in individual UK success stories such as Rolls-Royce, from a more cautious view of the broader economic outlook. That is shaping a more open attitude to diversification. Whilst they still back strong companies at home, there is a growing sense that some of the bigger opportunities may lie beyond the UK, whether that is commodities like gold and oil or overseas markets.”
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.