Market Commentary January 2022

We wish all our clients and readers a very Happy New Year. The year 2021 was a good one for stocks, fuelled by reopening optimism, strong corporate earnings growth, and medical breakthroughs. Much of the market’s momentum was recorded in the first half, before multiple challenges set in. These included inflation shocks beginning in late spring, a supply-chain crisis that impacted every industry by mid-summer, and rising interest rates as the year wound down. The year 2022 opens with many of these challenges still in place, and the stock market certainly faces a more-difficult path than was the case in 2021.

Market Commentary December 2021

The coronavirus is nothing if not persistent. With Delta and overall cases seeming to have peaked, along came the Omicron variant to spoil our Christmas plans. The markets reacted predictably with government bond yields falling dramatically. Fortunately, the very preliminary news is that the symptoms of Omicron infection are no more severe than those produced by “regular” COVID-19. But many countries are already restricting international flights, and the fear is that Omicron will proliferate as people gather indoors in the cold winter months. The new variant could prove to be nothing out of the ordinary, or the trigger for another global economic shutdown. The reality is likely somewhere in the middle, as it often is.

Market Commentary November 2021

Inflation remains the number-one topic in the stock market. Goods scarcity is impacting every industry, and the price of everything is higher. Yet despite this, corporate earnings remain solid. Earnings grew over 50% in Q1 and over 80% in Q2; the first-quarter comp was against a COVID-impacted Q1 2020, while the second quarter compared against the economic lockdown quarter of Q2 2020. The comp for the third quarter will not be as easy as the first-half 2020 comparisons. Nonetheless, earnings released so far are up more than 30% year-over-year and companies are beating expectations by a wider-than-average margin. That bodes well for supporting an already-high stock market valuation.

Market Commentary October 2021

September has presented the latest challenge to this bull market. The “September Effect”, as it is sometimes called, is often attributed to investors returning from holiday and starting to position for year-end. These investors may sell shares to lock in gains or capture tax losses to offset gains. Some may also be selling to acquire school gear for their children, which is not so much pens and notebooks these days but PCs and tablets. Why does this happen so often you may ask – if calendar events are so known, why are they not arbitraged away? It is because investor’s knowledge of past market patterns can make for self-fulfilling prophecies. This year, we view the September selling as a healthy and likely overdue shakeout of market excesses.

Market Commentary September 2021

This year, saying “all-time highs” has started to sound like a broken record. Nothing has seemed to rattle the market much in 2021, with volatility at historic low levels. But after the summer lull, things to tend to get exciting again for investors in September in what is historically the worst-performing month of the year, with the FTSE 100 falling on average 1.2%. However, although the average return is bad for the month, about half of all Septembers have positive returns. The problem is that when the market does fall in this month, the falls can be very large.

Market Commentary August 2021

When investors are disillusioned with the stock market, they tend to sell any rallies. And when they are willing to let the good times roll, they tend to buy any dips. So far, 2021 has been a year of buying the dips. During any trading year, a major index such as the S&P 500 routinely will dance above and below its 20-day moving average trendline. A more-meaningful sign of a dip is when the index approaches or falls below its 50-day moving average, regarded as intermediate-term support. On 18th June, the index fell under its 50-day m/a at 4,166. Within one week, it had recovered and hit a new all-time high, and stocks have been sailing ever since. In fact, the market could probably use a dip, just so investors can buy it.

Market Commentary July 2021

It is the eternal mystery – the days are long, but the years are short – and 2021 is no exception, with the months whizzing by and the mid-year already here. History will likely remember 2020 as the COVID-19 pandemic year, and 2021 as the recovery year. The health recovery is clearly underway, thanks to vaccines. Yet vaccination rates vary widely country by country. Politics is a factor, along with suspicion about treatments that were developed so quickly. The economic recovery is equally underway, aided by government stimulus. People-facing industries are seeing a return to something like the pre-pandemic normal, although a shortage of workers is slowing the process. And it’s not just workers that are in short supply; everything from semiconductors to bricks are subject to lengthening lead times, with subsequent price rises leading many to fret about the inflationary implications.

Market Commentary June 2021

Stocks have been marching to a steady drumbeat of good news, reflecting vaccine distribution, general reopening optimism, and plenty of government stimulus to get a creaky economy back in gear. The parade stopped cold for a moment, however, before lurching back at an unsteady pace. The cause was inflation, which is as nefarious to markets as a reality as it is as a fear. The Consumer Price Index rose 1.6% in the 12 months to April 2021, up from 1% growth to March. Economists always say that a single month of data can be misleading, and that may have been the case with April’s inflation data. However, the CPI captures pricing trends across the economy, from the cost of raw goods to the consumer reaching for his or her wallet. The data may not be an indication of inflation getting “out of the bag”, but it cannot be ignored either.

Market Commentary May 2021

With April winding down, you can count on someone, somewhere saying, “sell in May and go away”. That pronouncement is mainly popular because it rhymes, but there is truth behind it. Since 1966 the All-Share index has delivered a total return after inflation of 7.9% on average from Halloween to May Day, but has lost an average of 0.6% from May Day to Halloween – even including dividends. This is because in March & April lighter evenings and warmer days cheer us up, which makes us more willing to take risks such as buying shares. So prices rise to high levels, which are difficult to sustain over the summer. Likewise, in the autumn the darker nights make us gloomier, with the result that prices fall to low levels from which they recover.

Market Commentary April 2021

America’s financial titans are coming to a consensus: We are on the early edge of the biggest economic boom since World War II, with the promise of years of growth after the containment of the pandemic. They might be wrong, but all point to the same data – this expansion will be kickstarted by trillions in spending from Presidents Trump and Biden, the Fed’s easy money, and piles of cash that consumers and companies accumulated during the COVID shutdown. This is likely to be a global phenomenon, because the Biden administration’s spending will have ripple effects around the world. Governments’ actions in response to the pandemic has raised global GDP growth by a full six percentage points, estimates the IMF, adding that “the global growth contraction last year could have been three times worse than it was”. Still, total output shrank so much – by a stunning 3.3% in total – that there’s now an unprecedented amount of slack in the global economy. In other words: The world has more potential upside than ever.