The general election here in the UK will dominate headlines for the next 6 weeks, particularly once the first round of the French Presidential election is out of the way on Sunday. The bounce in the sterling on Wednesday after the announcement would have caught a lot of traders off side. Once again proving that being in the crowd can be just as painful as being out of it if your timing is off. To reinforce how negative sentiment towards the UK currently was, the latest Merrill Lynch Fund Manager Survey reported that two of the most underweight positions, relative to history, are sterling and the UK.
These Fund Manager Surveys can show some real anomalies. For example, fund managers think the long US dollar is the most overcrowded trade and US equities are the most overvalued. However, fund managers remain overweight US equities 0.8 standard deviation above their long-term average.
We did a piece on ShareRadio on Thursday morning covering the company earnings space and alongside that a brief commentary on current market conditions. We have attached the link to the piece. The point we make is that looking back over history this is the most unique investment period, possibly ever, but certainly in our life time. 10-year bond yields in developed countries below current inflation rates. Conflicting views on the global economy. Political uncertainty across the globe. The IMF on Wednesday reiterated their concerns on the strength of the European banking system. This is a fascinating time to be studying the savings backdrop. One can only expect that in years to come, when the dust settles, there will be many books written on this period, and many future economists who will be asked to study this era.
We started the month’s commentary raising the possibility of some April showers for equity markets, despite the rosy outlook investors felt coming into the second quarter. So far, this month has certainly seen maybe not showers but certainly a few squalls[S1] . Global equities started the month up 6.1% year to date, now they are closer to 4%. The S&P 500 has lost roughly 4% from its peak of a few weeks ago. The world tends to focus on the performance of the S&P 500 as a guide to the strength or otherwise of US economy. Where that leads others tend to follow. Due to the growth of modern companies such as Amazon, Apple, and Google, 8% of the companies in the index now contribute 85% of the performance. This can hardly be described as a true measure of the state of the US economy. The FTSE 100 is now down on the year. Interestingly the FTSE 250 index of smaller companies has held most of its gains for the year.