Investment Bulletin – July 2019

Overview

We have moved into a time where there are many fears in the markets and world in general. From an investment perspective, this becomes the ideal environment where through our defined approach to investment and portfolio construction. This is where we have been able to add real value.

This manifests itself in losing less when the market drops and making a decent return the rest of the time. The strategy is a multi-asset and diverse approach seeking out sectors in the market where the risk of being over-priced is minimised and utilising niche sectors to target potential future profits.

These are the times where the quality of the strategy shows. This is where we plan to make a notable difference.

FTSE 100 Index Values

After stocks’ seemingly strong start to the year and a minor correction in May, investors have reason to be satisfied with the market’s 2019 performance. But by some measures, the stock market is lagging after shaking off the Q4 panic.

Through the second half of 2019, trade troubles still gnaw at investors. President Donald Trump said he will have an extended meeting with Chinese President Xi Jinping but the issue is clouded with uncertainty.

Markets are caught between the incoming data pointing to slower global growth and forward-looking factors that suggest improvement later in the year. History tells us that global equities can continue to rally late in the cycle, even as Government Reserve Banks potentially tighten.

Markets have been in ‘wait and see’ mode. The tensions between the US and Iran have continued. How this dispute plays out from here depends on if we see further attacks on shipping and how the US responds?

The new Prime Minister. In terms of the campaign, there has been plenty of noise with both Boris Johnson and Jeremy Hunt appearing to still believe the EU is willing to reopen negotiations.

In terms of the portfolios and our views, there’s been no change to recent recommendations. The immediate outlook for risk assets will be driven by headlines from the G20. We are mindful though that with markets at or close to record levels in many cases, and a lot of positive outcomes being assumed on the many geopolitical issues that remain ongoing, there is a lot of good news priced in to current market levels, and the potential for bad news remains elevated with complacency aplenty.

What can we expect in the next six months of 2019?

Making stock market predictions is about as effective as forecasting the number of rainy days in a year. Investors can prepare by focusing on market conditions at hand and the factors that could change, for good or bad.

The US Federal Reserve can take credit for much of the good start to 2019, after a dreadful fourth quarter and an especially nasty spell in December 2018.

We would blame this year’s modest rebound on the trade war with China. This is arguably the single largest factor influencing the stock market forecast. Practically every economist and brokerage pins tariffs as the biggest issue facing the financial markets.

Optimistic White House comments about an imminent trade agreement with China were a reason the stock market climbed the first few months of 2019. Then on May 5, President Trump and U.S. officials suddenly said Chinese negotiators reneged on key parts of the talks. The news rattled the market.

China getting more stimulus

China’s economy continues to slow. The positive outcome is the downturn is pushing authorities toward more aggressive policy stimulus measures. Looking through the noise, there appears to have been a strong lift in bank lending and the broader total social financing measure over early 2019.

Chinese authorities have announced a broad range of tax cuts, and it’s likely that local government spending on infrastructure projects will be ramped up over the next few months.

Stock Market Predictions: Tariffs And The Economy

The surprising turns in the trade war show that the issue is volatile and make the stock market forecast for the remainder of 2019 difficult to make.

Rather than trying to predict the market, we follow a structured approach of multi-asset assessment, stress testing and historic back-testing. We believe this time of volatile mispricing supports are systematic with a tactical overlay approach. Our expectation, given time, is to make a profit.

This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.