Looking back, it is interesting to now see that the three potential flashpoints (highlighted during Xmas last year) that could have caused problems for the markets are turning out to be non-events. The three events being Fed rate rise, Brexit and the Mueller investigation.
As we know, the Fed has now returned the punchbowl with no rate rises this year and removing balance sheet reduction by October, but ironically the US market fell after the news is made public- sell on fact. You can’t give much credibility to a Fed chief who makes a 360 degree U-turn – he sent the wrong messages which sent the markets into a tailspin – and you’d be worried about him managing the next crisis! You don’t yield to a child making tantrums – the Fed has now lost its power!
Ah Brexit, total waste of time, and we now see support for a second referendum as UK politicians cannot decide. This is the problem when you get people to vote based on emotions rather than wider implications for the country – and the people who voted purely on immigration issues had blinkers on with regards to other wider ramifications (of Brexit) that they clearly never had the penchant to understand. Brexit will be a non-event for global markets (but only for the UK and sterling) because they can still opt for a possible further extension or a revocation of the initial vote.
After so much time and resource going into the Mueller investigation, with POTUS’ aides being convicted, there are no evidence they could find to indict or hold POTUS guilty of conspiring with the Russians. Yup, the guys doing his bidding acted on their own. So another waste of time and non-event as it turned out. Ironically, that is good for the US market.
Another- the US-China trade war has pretty much been discounted – it’s just another Trump play to sell his ‘America first’ story and China is too pragmatic to not come to some sort of concessions but without showing they conceded to the Americans unilaterally.
While all the above are no longer threats or significant threats to the global markets, the global downturn and rapidly cooling domestic economy are centre-stage concerns with the R word returning to haunt. As the global economy slides over the next 6-12 months into a possible recession, corporate profits would be adversely impacted and valuation would be reduced, so risk-on is back and a reminder that people need to practice appropriate risk management at all times.
There will still be opportunities to make money in the stock market at least in the next 6 months , although I would be deeply wary come the next October, but the key thing is stock selection. I should be backing stocks with remaining explosive growth catalysts at play but sidelining blue chips with moderating outlook and small caps with no or limited business progress traction. The central tenet I am advocating now is stocks with great ‘risk-reward potential’ (low risk high reward or high risk with significantly large reward).
