Investment bank economists, strategists and analyst’s pour over a constant stream of data, searching for clues as to deciding how markets are going to perform in the coming months, to justify their existence. Having spent many years at investments we have been exposed to a broad range of theories, expectations, and periods of boom and bust most of which has failed to have been correctly forecast. It feels sometimes analysts extrapolate what is the current status quo and finding reasons why this should continue. The oil price correction was a classic example, no-one forecast the fall, when it occurred many analysts then found reasons why the price would not rise again.
A fund manager friend always describes himself as a fully invested bear, which provides him an emotional hedge. Hope for the best plan for the worst. It would appear, reading many journals that this view sums up many professional and retail investors sentiment currently. After nearly 10 years in a bull market and having been nearly ruined in 2007, most equity investors seem keen to keep one eye on the exit sign.
According to a report in the Financial Times on Monday Goldman Sach’s, stated in a research piece that investors should stay calm, despite many concerns around Korea, budget ceilings, weak dollar, flattening yield curves, expensive valuations of US securities, to name but a few items in the laundry list as they describe it. Don’t panic Mr Mainwaring was the message, adding the caveat “for now”. They quote the phrase that markets die on euphoria and in their opinion, we have not reached that point. We have often expressed the opinion this feels like the most unloved bull market in modern times.
January 2016, RBS advised all its clients to be braced for a “cataclysmic year ahead”, sell everything, as equity markets had their worst start to the year since the mid-1970’s. Stock markets may lose a fifth of their value, the oil price will plunge, the bank's credit team saw warning lights flashing similar to those ahead of the Lehman crisis. The equity market bottomed in early February, shortly after that dire warning. Despite two further events, Brexit vote and Donald Trump elected, that many thought would be “cataclysmic” for equity markets, in the end, global equity markets had a strong year. The S&P 500 is currently up approximately 25% from the low of early February. Any investor who took RBS advice in late January would indeed have had a cataclysmic year.
So, should equity investors be worried that Goldman tells us not to worry, possibly? The current environment for equities has been described as a Goldilocks time, low-interest rates, low inflation and reasonable economic growth. Both the RBS and Goldman piece seem to look at what is currently occurring and extrapolated that will continue going forward, was ever thus.