Please find below our weekly Investment Snapshot for the week ending 6th April 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
Wall Street began the second quarter with a correction, with all three major US indices closing, on Monday, more than 10% below January’s highs. This happened as technology and internet retailers underperformed the broader market – Amazon fell 5.2%, and Tesla stocks also fell 5.1% as CEO Elon Musk jokingly announced on April Fool’s day that the company was bankrupt… it is safe to assume his majority investors were not best pleased. Overall, The US benchmark S&P 500 dropped 2.2%, with declines in all major sectors, and fell below its 200-day moving average. The Nasdaq Composite fell 2.7%, and the Dow Jones Industrial Average closed 1.9% lower. Stock markets in the US have since recouped a large chunk of Monday’s steep losses, although there is persistent concern over trade tariffs and problems within the technology sector. These concerns have rippled through markets across the world, with significant losses in Asia and Europe earlier this week as well – the DAX in Frankfurt shed 0.8% on the session and the Topix was at one stage, 0.5% down.
Despite the correction at the beginning of the week, sentiment is improving on stock markets on Thursday, with gains in Europe and Asia following a late rebound on Wall Street on Wednesday afternoon. This is due to hopes that Washington & Beijing could avert a deeper trade dispute between the world’s two biggest economies. There is still plenty of time for a deal to be struck between the US and China, before tariffs come into effect. Global Markets have seemed to agree with this opinion, with the DAX up 2.3% at the time of writing, the FTSE up 1.64% and the Japanese Nikkei currently up 1.53%.
In terms of currency, the dollar is ticking higher following on from the news, as the index sits at 90.302 – its highest point for over two weeks. Japan’s Yen has fallen 0.3% though, at ¥107.08 per dollar. The dollar has also strengthened against the pound, as the British currency has fallen 0.5% on the day.
Gary’s market comments in conjunction with our investment partners
Regardless of how the trade war develops, LGT Vestra will continue to manage the portfolios in a truly dynamic way; actively asset allocating in response to changes in market conditions or taking advantage of compelling opportunities as they present themselves across the market cycle. There is a risk that market sentiment continues to deteriorate in the long-term and the damage from a further escalation of the trade conflict with China could be much greater. However, Vestra will continue to monitor the situation as it develops and actively manage the portfolios in line with their thinking.
The increase in volatility seems to have taken some investors by surprise, although the level of market movement seen recently is in line with historical averages. And while stocks have tended to trend down, we believe that much of the focus of the sell-off in the S&P 500 has been related to tech stocks. However, the economic backdrop should still yield positive results for US firms and US tax reforms are likely to boost the economy still further. We have put in place a put spread on the S&P 500 with a higher strike price of 2,600 and a lower strike of 1,950 which should protect the portfolios if bad news continues to sway sentiment.
Sources: LGT Vestra and 7IM