Turning for home

Equity markets were once again buffeted by geopolitical rather than economic news, as the overnight developments in Hong Kong added to the recent investor geopolitical concerns. Closer to home George Osborne speech at the Conservative conference focused very much on the economy and the Conservatives record against that of Labours. It rather feels that the electioneering ahead of next May is being cranked up.

 

In a volatile day the FTSE 100 fell nearly 1% at one point but managed to claw most of that back by the close. The S&P 500 so far has held the support level of 1950. The Vix touched 17 intraday, the level it reached before the market consolidated from the previous correction in late July and early August.

 

The US dollar continued its climb higher along with US treasuries as investors sought safety. As we close in on the end of the 3rd quarter it has been a fairly grim for equities as the FTSE 100 has lost approximately 2%, the Dax nearer 5%, and European equities overall have fallen about 1%. Once again the most robust performance has come from the S&P 500, which despite some volatility is largely unchanged in the past 3 months. Overseas investors will have benefited owning US stocks from the appreciation of the US dollar.

 

In the past 3 months healthcare and IT have continued to lead the way as they have done all year. Financials have had a better time of it, being one of the best performers in the quarter. It continues to be a tough year for active portfolio managers as, according to Merrill Lynch only 20% have managed to beat the Russell 1000 this year by the beginning of September. Hedge funds continue to struggle, as no one really positioned themselves at the start of the year for the bond market to perform in the way it has done so far.

 

The final quarter will be dominated by the upcoming earnings season starting next week with Alcoa. The UK equity investor has already had to dodge bullets from Tesco, Balfour Beatty and De la Rue, its quite possible there may be a few more to come. It may also be that just as European and UK earnings were impacted by the strength of their currencies in the last quarter US corporates may have felt the impact of the recent strength in the US dollar in the last quarter.

 

The other event that may well dominate the headlines in the coming weeks aside from the winding up of the Federal Reserves bond buying program, will be the US mid term elections in November.

Posted on September 29, 2014 .