A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
US Economic data has disappointed up until June when it stabilised.
Unemployment in the US is extremely low at 4.4%. If previous cycles are anything to go by we should have wage inflation around the corner. This means the Federal Reserve is more likely to raise interest rates.
In the UK prices are rising faster than incomes which has led to weak retail sales in June. The Bank of England has turned hawkish of late regarding interest rates but weaker inflation figures this month may prevent interest rates rising in the near term
Equity Markets across the world have performed strongly since last year but as always, we need to be aware of the downside should these markets undergo a correction.
The good news is that whilst equities are pushing on the valuations don’t look particularly expensive in some sectors. Strong growth in the US is supporting healthy earnings and there is the potential for further stimulus. As the world’s largest economy, clearly this is important. Opportunities abound in Europe with a clear recovery underway. The same can be said about emerging markets.
Fixed income no longer creates a viable, stable alternative in times of market volatility. It is Absolute Return funds and alternative assets which are being used in our portfolios to create ballast.
Gary’s market comments in conjunction with our investment partners
LGT Vestra are anticipating volatility over the summer as Congress takes on the task of negotiating and extending the debt ceiling under President Trump, which could lead to nervousness in markets and falls in the value of the equity markets.
During these times of drawdown, (see last two weeks of June – UK and US markets fell 3%) LGT look to the absolute return funds to bolster the portfolios.
Below is a chart showing the absolute return funds versus S&P and FTSE 100 over this two-week period.
No portfolio updates from 7IM this week
Sources: LGT Vestra and 7IM