Poor Mr Davidson

Headline good economic news can often be bad news for equity markets, but not on Thursday, after a jump in the headline April durable goods orders for the US saw equity markets little changed after a strong day on Wednesday. This, along with a fall in the weekly unemployment claims underlined the recent better data from the US economy.


According to the Wall Street Journal digging deeper into the durable goods report, orders for non-defense capital goods excluding aircraft fell during April. Overall one could conclude that the picture for economic growth in the world’s largest economy continues to look solid but unspectacular.


Also released on Thursday was the final reading for Q1 economic growth in the UK economy. No real surprises there as the year on year reading came in at 2%, fractionally below the previous estimate of 2.1%. Again solid but unspectacular.


Equity markets appear to continue to trade in quite tight trading ranges. The S&P 500 comes close to 2100, where it is now, and then retraces back about 3% just above 2000, and then consolidates.  Aside from a small burst to 6400 in Mid April the FTSE 100 has traded between 6200 and 6000, again about a 3% range from early March. Likewise the Stoxx 50 from just under 3000, to just above 3100.


Studying the latest AAII investment sentiment data, it reveals how much current market conditions can drive investor sentiment. Currently only 17% of those polled think the equity market will be higher than currently, in six months time. However, more than 50% think the market will be little changed in the coming six months.


This lack of equity market volatility can often lead to complacency. June has a couple of significant events, the Brexit vote being one, a possible move by the Federal Reserve to raise interest rates on June the 15th is another. Either event could shake investor complacency. Summer can often be a volatile time; volumes are low as many decision makers take the family holiday.


Last point, much is made of fees paid to invest and the impact it can have on investment returns. To highlight this point a letter in the Telegraph by a Mr. Davidson from Cardiff. He wanted to invest £1200 into his pension; by the time he had paid for the purchase, the wrapper fee, advisor charge and commission, which left £131.75 into his pension pot! 

Posted on May 26, 2016 .