25 January 2018

Ever Upwards?

January can be very much a big picture month for investors.


Across in Davos, the World Economic Forum is taking place, with world leaders, central bankers and industrial magnates all vying for attention. Indeed, three major central banks are meeting to discuss monetary policy while this increasingly influential get-together takes place. Our own Bank of England, the European Central Bank and the Bank of Japan, will be announcing their deliberations on whether interest rates should rise (a further cut does not look in prospect), though most expect all three to leave things as they are.

While Davos is really little more than a talking shop, some of the information that emerges can be useful in trying to determine how things might pan out economically in the months ahead. This year’s junket is taking place against some upbeat statistics from the International Monetary Fund which considers the global economic recovery to be strengthening. With China having recently reported fourth quarter Gross Domestic Product growth of 6.8% and retail sales 9.4% higher for December, year on year (actually down a little on the last published statistics), the big economic picture is certainly looking more encouraging.

This is just as well, with markets on both sides of the Atlantic hitting new highs. Opinion is divided on whether these strong markets are sustainable. In the US in particular, average valuation levels are at a high, though there is considerable variation between sectors, with technology looking particularly expensive. Still, but nobody rings a bell at the top – or the bottom for that matter. Even the IMF has hedged its bullish statement by pointing out that the time to ensure the correct policies are in place to sustain growth is when things are going well. Investors clearly feel that things will go well for a little while yet.

Perhaps further clues to the state of the market in the future will emerge from the corporate sector. Company results are now starting to arrive thick and fast as those businesses with a calendar year end report their fourth quarter figures. Let us hope there are no disappointments. My experience, though, suggests that an end to this impressive Bull Run will be triggered by something not yet on investors’ radar. Let us hope this impending inflection point is still some way in the future. Make no mistake, though. It will arrive someday.


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