What a week we have seen with the markets lapping up positive data from the States on retail sales. Economic data has been mixed, but recent non-farm payroll data seems to suggest we are generally still on track for recovery. Care is needed as the last consumer confidence index had turned more negative. This overall has been really good news but there is fear – when we see a strong bullish faze on what is at best insufficient data to draw an effective conclusion, then this is often a cause for alarm for investors. The caveat being – it may not take too much bad news to jolt investors, the market and sentiment.
Consensus thinking among investors typically is wrong, as human nature is to jump onto the bandwagon long after it’s left. So we jump at the hope of success, forcing the market up short-term but then the fundamentals override – if it is ‘real’ good news the pressure in the market has a good chance to continue up – but otherwise, market pressures have a good chance to plummet and downward pressure is typically quick and heavy.
The worry being, the higher stocks have climbed, the bigger the potential drop in prices. What might be the catalyst for such a change in trend? Often the biggest threats to markets stem from unexpected events. Or, from something we know and has been discounted as a risk factor, such as, rising fuel and food prices, the UK Budget, the Greek Debt Crisis, the Eurozone Crisis, Nuclear risks and Oil in the Middle East, the US Recovery, China’s Economy Soft Landing, inflation in Emerging Markets and product demand, etc.
The management of Greek Debt Crisis has gone as well the ECB could have hoped, although with creating what I believe to be the biggest write-down in history and the re-writing of debt to reduce it’s cost, have we only deferred the problem. I guess much still will depend on what happens next, especially after the Greek elections in late April or earlyish May this year. So is China still able to be our global financial saviour? Figures out of China are also mixed but, at worst, they imply a soft-landing.
Following the recent rally, many equity markets appear fair value in a low growth, relatively low interest rate environment but these valuations are dependent on corporate profitability. For now, I retain a positive outlook for UK, US, China, Asian, some Emerging and certain niche markets – focusing on strong balance sheets, cash reserves and robust business models. This will be reviewed throughout the year, when hopefully there will be greater clarity on global macro issues.
In bond markets, I believe this year will now be driven by corporate earnings. I am now more risk-conscious than previously.
Property has significant positive signs but following the recent rally, care is needed as there are signs of a market pull back as some property indexes look overstretched.
Happy investing but take care.
Any questions, contact me – welshmoneywiz@virginmedia.com
welshmoneywiz 
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