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Summer 2015 Market Commentary

Posted by jdavis on September 10, 2015

First, the chart of major stock markets:

Until this Summer, most major markets continued to drift upwards.  The Chinese market (in Black) caught up, latterly.

However, as you may have seen, particularly in August, equities had a bit of an upset.

The losses so far are as follows:

US c 12%

UK c 18%

Europe c 22%

Japan c 17%

China c 44%

This is what I said in June - in this piece:

"We were confident that the early 2015 highs were not a good buy.  Indeed, we have been uncomfortable about the FTSE for 2 years..."

We are still uncomfortable about all of the above stock markets.  There is a distinct change in behaviour compared to the many "V" shaped recoveries from falls, over the last few years.

Am I saying the markets will just fall in a waterfall from here?  No, not at all.

I am saying that there is a significant probability that markets are going through a topping exercise (having risen for years) and, unless they repair themselves, the trend is now more likely down than up going into 2016.   No guarantees but that has a higher likelihood than a resumption of the uptrend.

Can the markets go back up to the highs first?  They could do easily.  But they do not have to.

Are the 'rivers now flowing down'?  Seems that way to us, even if from time to time the tide changes direction.

Most investment portfolios are 50-70% invested in shares.  Need I say more on what you ought to be doing now?  If you need support, just make contact.

Let's look at the FTSE 100.

The index has slumped, this Summer, to the same level as twice before (Summer 2013 and Autumn last year).  We are also at the top as seen by 2011.

The market is saying we were unsure about being above 6,000.  We need time to decide.

From an investor's point of view, no gains for over 4 years. 

But with capital risk.  Many have urged us to get into Western equities during the last couple of years in particular.  At this point, it would have benefited no-one to do so.

We find that most UK folk's portfolios are heavily laden with UK stocks. 

Now, let's take a much larger timeframe look at US and UK indices:

Since 2000 to early 2013, they were largely in lockstep.  Then, the US market went on its merry way, while the FTSE faltered.  [In reality, on an inflation-adjusted basis, the US market is at 2000 highs.]

Now both have turned down somewhat and the UK appears more fragile than the US.  If so, that will be borne out in due course. 

It is notable the FTSE tried 3 times to break above 7,000 sustainably and, thus far, has failed. 

After 6 years of gains, since the 2008 collapse, we have to ask if we are coming to the end of the economic cycle - which lasts about this length of time.  There's more on economics in a piece close by.

Is the West heading for Recession?  We'll see.  If you consider China (2nd largest economy on the planet is probably in Recession) then it is more than possible in 2016.

In any case, when it comes - whether in 2016 or later - what will the policymakers do?  Slash interest rates?  Of course not, as it is not possible.

Still believe you do not need to review your portfolio?


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