The wave of economic optimism that took the world by storm post Donald Trump’s election appears to have fed into the fund managers portfolios. One could almost touch the change in sentiment as growth stocks were dumped at random in favour of the value sectors, or those sectors that are more sensitive to economic growth. The change in sentiment pre-and post-election is remarkable. One example, Bridgewater hedge fund’s founder Ray Dalio now believes that Donald Trump’s election is one of the turning points of the decade for markets. Ahead of the vote Bridgewater believed markets would plummet on a Trump win.
The latest Merrill Lynch fund manager survey reinforces this view as cash on the side-lines fell to 5% from 5.8% at the previous report. Construction stocks are the most overweight since 2007. Who would have thought that Donal Trump could achieve, at least in the short term such a change in sentiment? Global growth expectations are the highest they have been for 12 months, according to results of the survey. This change in sentiment could have further to run as equity cash balances remain well above the 3.5% they have historically fallen to at other points in history, demonstrating how unpopular this equity rally has been over the past few years.
Retail investors, who are traditionally thought by professionals to come into the market at the end of the rally have been likewise cautious, if the AAII weekly investor survey results are anything to go by. Even they now seem to be getting more positive. Last week’s survey showed a 15% jump in those polled who thought the market will be higher in the next 6 months. This week that number grew by another 7%.
The latest unemployment data was revealed on Wednesday. Theresa May during prime minister’s questions basked in the glory at the latest fall in unemployment. One statistic that the prime minister may like to focus on is the number of new start-ups in the UK. According to a Telegraph report in July, entrepreneurs are starting new companies at a record pace of 80 an hour. Perhaps a lot of the new jobs are being created in the world of accountancy?
What this statistic may go to indicate that unemployment rate may be falling, not because those made redundant are being gainfully re-employed, but have decided the only way to take themselves of the unemployment list is to employ themselves. In which case, many of those businesses could eventually fail, and then find themselves not only once again unemployed but also saddled to a debt.
Another statistic that may back up this view is the lack of growth in earnings despite the fall in unemployment. Average earnings have grown at best by approximately 2% since 2010. Well below the 4% plus in the early to mid-2000’s.