New article from Tatton Investment Management: 2019's market recovery beginning to stutter?

11 February 2019

After one of the worst Decembers for Global investors since the Great Depression followed by the best January since 1987, the first week of February has started not too badly for investors. While up overall, the 7th week of the 2019 stock market recovery ended with a little bit of stuttering. This was quickly blamed on Trump and Brexit, which admittedly are easy targets – but they have been all along.

So, have stock markets finally woken up to the fact that the global economy is really slowing, as can be argued, they had correctly anticipated with their Q4/18 sell-off? Well, not quite. It is far more likely that the recovery has simply run out of steam and enters a consolidation phase. This could last until it becomes more evident that the easing effects of lower yields, less monetary tightening pressures, Chinese stimulus and lower energy prices – that had appeased stock markets over January - are actually taking effect and manifesting in improving economic news flow.

As we wrote here only last week, a good January doesn’t yet make a good year and in the current late cycle environment frequent bursts of volatility have to be expected on the way. However, the less hawkish stance central banks in the US, the UK and Europe have adopted since the beginning of the year, together with more positive business and consumer sentiment levels than backward looking economic report news flow would suggest has increased our conviction that the direction of stock markets over the coming months is far more likely to be up rather than down as in 2018 – notwithstanding the odd downward draft that will intersperse that general trend.

From a UK perspective this must sound overly optimistic, given the currently never-ending litany of highly depressing political squabbling. Hence my choice of cartoon this week to offer a humorous note to the Irish backstop negotiations impasse with the arrival of the Chinese year of the pig, given it is really all but funny. The UK’s central bank, the Bank of England acknowledged this week the effect the Brexit drag has increasingly on 2019 business activity. The resultant decision against another rate rise may be good news for anybody with a flexible rate mortgage, but the reason behind it – stagnating real wage growth – is the opposite.

For UK investors it is important to recognise that while the potential future path of this country may make us fearful or at least undermine our confidence to put our savings to work until all this is resolved, typical investment portfolios’ investments reach far beyond our immediate regional horizon. Furthermore, the vibe we are picking up from our many contacts across business, finance, media and politics is that the most likely outcome is currently seen as some sort of a ‘fudge’ between the governments proposed deal, an extension of the exit date and a customs union. The scaremongering from all sides has to be understood as necessary but unpleasant part of the political process of coercing reluctant parties to agree to some form of compromise.

The relatively stable external value of £-Sterling over recent weeks tells us that the probability of the Armageddon scenarios of inadvertently sliding into a no-deal exit has a much less significant probability than some suggest.

Sad to say we predicted that Brexit negotiations would go to the wire – however, just how close it would get to the set date in the end, even we did not believe possible. In the meantime, it is worth looking beyond our immediate boundaries and realise that the rest of the world is looking far less pessimistically into the near-term future. The strong capital market recovery of the past seven weeks – while Brexit proceedings deteriorated from bad to worse – should be considered as evidence for this view.

News Archive

11 February 2019

New article from Tatton Investment Management: 2019's market recovery beginning to stutter?


15 November 2018

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15 October 2018

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1 October 2018

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24 August 2018

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27 July 2018

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20 July 2018

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11 May 2018

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4 May 2018

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6 April 2018

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29 March 2018

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23 February 2018

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16 February 2018

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9 February 2018

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6 February 2018

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2 February 2018

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26 January 2018

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19 January 2018

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12 January 2018

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15 December 2017

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17 November 2017

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