First Half 2016 – All Change?

Before writing this I had a look back at my review of 2015 that outlined some of the major issues for investors and whilst I don’t want to go into all the detail again the salient points were that: –

  • The FTSE-100 was potentially again in a “bubble”
  • The risk of a “trigger” to cause a reversal
  • Challenges to the Global Economy
  • A lack of value in many asset classes
  • The problems of ultra-low interest rates

Well the news is that these all still exist; the main changes are that the “trigger” for the UK market in particular may well have been the result of the Referendum and the problem of ultra-low interest rates may well get worse with talk of a cut to 0% by the Bank of England.

Inflexion Point?

Before going on to look at specific strategies that were mentioned back in January one that I would like to look at specifically is the possibility that the EU Referendum was a “trigger” for prolonged market declines. With the Press, Social Media and other discussion there has been a lot made of what happened to the FTSE-100 (and Sterling £) after the results.

Depending on what side of the debate was presenting there were initial knee jerk comments from the remain camp that suggested a crash of 1929, 1987, 2000 or 2007 proportions as the FTSE-100 fell almost 9% in a day. Fast forward a few days and the index was back where it was before the Referendum and the leave camp were pointing out that the FTSE-100 was now almost 19% above its low for the year set in February!

The answer is that both are wrong; it’s a short term view that we consistently caution against. Looking at a week of data is just a microcosm of the market and in the long run is hardly noticed (the red arrow is pointing at the date on this weekly chart).

ftse

If we look at things over the longer term the index was already heading downwards after reaching a high last April and could well be indicative of the cycle that has repeated itself time and time again.

market cyle

Look at the first chart I showed of the FTSE-100, to my mind the “Bull Trap” and “Return to ‘normal’” is where we are now…………in other words its time to be a good Boy Scout and “Be Prepared!” For a picture of the similarities between current markets and the previous tops of 2000 and 2007 take a look at the chart below as the index continue to trace out a similar pattern to previously.

tops

The reason that I wanted to demonstrate this is to show the importance of perspective and not listening to the latest media sound bite or “expert” on the effects of the results. The Referendum was one event, that may well in the future be seen as the final “trigger” to cause a sell-off, but the fact remains that before and after this the UK Equity Market looks overvalued on a number of metrics and indicators that we look at.


Sneak Preview

For subscribers I have added some new updates for market conditions, model portfolios, fair value estimates and share reviews; for everyone else here is a sneaky peek…….

Estimated Future Returns from FTSE-100 still negative

implied returns

Risk levels on the rise

risk indicators

Model Portfolio forging ahead!!!

Screen Shot 2016-07-07 at 12.43.05

 

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