Understanding the Recent Market Sell-off

Not widely welcomed, but arguably overdue?

The sharp sell-off in stocks that started last week and gathered steam this week lacked a specific trigger — unlike the last time US shares fell this much, which came in the wake of the US losing its AAA sovereign rating at S&P Global Ratings in 2011.

As with plane crashes, the experts are pointing to a confluence of factors, from concerns over the path of Federal Reserve interest-rate increases to a rapid unwinding of trades predicated on continued low volatility in markets.

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Market Update

News this past week:

  • Oil prices climb around 5% last week
  • Volatility makes a comeback moving to 10.9 on the VIX index
  • Global equities trading near record highs
  • Technology stocks under pressure with continued sell offs
  • Central banks adopt a hawkish tone around fiscal tightening

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Weekly Market Update

News this past week:

  • Markets climb on ‘Santa Claus rally’
  • ECB extends quantitative easing programme
  • Volatile week for Italian banks following referendum
  • Encouraging trade data out of China
  • Oil surges after more countries agree to cut production

James Klempster (CFA) of Momentum Global Investment Management shares his view:

As this is my final blog of 2016 I felt it an apt time to look back on the year and to look forward to some key issues for 2017.  My colleague, Glyn Owen, will be writing a far more detailed review and outlook which will be published in the coming days .  2016 was a year of mixed fortunes for investors, a very weak start set precedence for what looks likely to be a decent year for equity markets. 2016 will be best remembered for its twin political surprises of Brexit and Trump, or Brump, if you will. Whilst both being seismic-scale political events, the fact that their respective domestic markets brushed them off underscores the fact that a macro or political story is not the same as an investment case.  To put it another way – even if you had called both elections correctly, would you have positioned your portfolio to benefit from an equity rally in either case?  Probably not.

To read the full update please click here

Weekly Market Update

News this past week:

  • US indices record new highs
  • Fillon wins French centre-right primary
  • UK Q3 GDP growth at +0.5% amid sombre OBR forecasts
  • Euro area PMIs show encouraging signs of growth
  • Trump reiterates intent to leave TPP

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PortfolioMetrix Market Update

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September was again dominated by will-they/won’t they speculation around the US Federal Reserve raising rates at their meeting during the month, although fears over Deutsche Bank’s viability and an OPEC agreed production cut were also significant events.

Meanwhile, PortfolioMetrix’s model portfolios’ relative performance was again strong over the month, with the 10 balanced funds they regularly track up on average 0.3% over the month with the highest performing up 1.0% and the weakest down 0.5%.

Overall, Core Active 6 outperformed 9 of these 10 competitors.

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UK’s FTSE 100 Defies Brexit Blues to Charge into Bull Market

FTSE 100 Bull MarketThe FTSE 100 charged into bull market territory Monday and the pound spiked above $1.30 after Theresa May won the race to succeed David Cameron as Prime Minister.

A third day of gains helped push the UK’s FTSE 100 Index into bull-market territory.

After recovering from its post-Brexit plunge in just four days, the gauge of UK megacaps continued its rally, and is now up 21% from its February low. A dramatic plunge in the pound has made the gauge’s multinational companies more attractive since the country’s vote to leave the European Union. Analysts have joined investors and strategists in taking note, boosting profit-growth estimates for FTSE 100 members by about 4.5% in just over a week, the biggest such upgrade in more than a decade.

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Shock Finding, Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks

The latest shocking example of just how intertwined central banks have become in not only Treasury and corporate bond markets and their respective “valuations”, but also in stocks, comes courtesy of the Bank of Japan which days ahead of an announcement which may see it double its ETF purchases from the current JPY3.3 trillion to JPY7 trillion or more has just been revealed to be a top 10 holder in about 90% of all Japanese stocks!

As Bloomberg reports, “they may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank.”

While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock Inc., the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion.

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