The themes we have discussed in recent months haven’t really changed. Stock markets continue to make steady progress with both large and small caps are participating in what feels like a nice, secure uptrend with low volatility levels. We did have a minor wobble when Wall Street recorded its first 1 per cent down day in over four months on March 21st; happily normal service was quickly restored and most indices are now trading just below their all-time-highs. Interestingly, while AIM is still well below its pre-crisis highs, it currently has the strongest-looking chart amongst the UK indices.
In the GCI Portfolio update I mention the importance of staying in rising markets and the dangers of selling too early by trying to pre-empt a bear phase. Everyone agrees that market timing is the most difficult thing to get right; so we really should avoid the temptation to try it. I have limited myself to raising just a tiny amount of cash in that portfolio and that’s all I advocate doing in real-life portfolios. While I think we might be becoming overdue a correction, we certainly don’t have the extreme valuations and euphoria which surround major tops.
However there are a few things that could cause a more sustained wobble than the one-day wonder we had this month. One is seasonal. We might think it a bit irrational and it doesn’t always work out this way, but it is an empirical fact that the summer months generate inferior returns to the autumn and winter stock market season. The old market saw of ‘Sell in May and go away, don’t come back ‘til Ledger Day’ (which is in mid-September) is well-grounded in decades of experience. At least it provides a good reason not to always invest your ISA subscription right at the end of the tax year – best to leave it in cash for a few months and pick a better moment!
There are also plenty of geopolitical things for the market to worry about if it is minded to. We don’t need to list them all here but there’s unusual scope for unsettling headlines. We might also start to fret about the Bank of England’s amazing laisser-faire attitude to interest rates. If ever a central banker looked complacent in the teeth of already rising inflation, a weak currency and full employment, it must be Mr Carney. Almost every company I talk to tells me of cost pressures and the need to get price rises through. It’s not hard to see how this could gather momentum with the authorities well behind the curve. And the impact of rising interest rates in an economy which has got used to them only ever falling could be unnerving.
So what’s the conclusion? Sitting on the fence doesn’t help us; so the message is to stick with it and go with the flow. It could be a while before some of those troubling aspects get the upper hand and make the investment glass appear half empty all of a sudden. But they are out there though, so it’s important to stay vigilant.