The (changing) View from Andy’s Desk

What a hot one! As a not quite so-young person I remember the 70`s for their hot summers and hose pipe bans, but phew it’s baking…  I have been quiet for a couple of weeks as I have been on a family tour of France. I was a digital nomad setting up my office in different holiday lets. One Covid advantage is that working remotely is so much easier and possible wherever you are.

Having now returned, things are looking a bit more positive as we are seeing the expected slow grind back up in value and the expected interest rate rises and slow down of economies around the world. Unfortunately, we now see further unrest provided by China, but market valuation wise this was already on the cards.

We tend to all focus on the US a lot as the US tends to drive trends, but recently it’s been no surprise that European economic data has caught the eyes of the interested… Both consumer and business sentiment surveys indicated weakness, which may well drive a downturn across the continent. This was not unexpected but it was a good indication of what we thought was happening.

But it is no longer a recession-only market. In recent weeks we have seen some very positive upturns in equity markets. Despite lacklustre US earnings, the S&P 500 gained. Even more surprising is the Euro Stoxx 50, which was also up. Both indices are well above where they started at the beginning of July. Economies have weakened but markets have rallied. That’s not normally the case so interesting indeed.

Why? The key factor here is not the weak economic data on its own but the expected policy response. If as expected there is a concerted effort to do something about energy price inflation and the knock-on effects on the wider economy, we will see more positivity and a boost to recovery.

I know if the UK manages to avoid rocket ship increases in costs for the UK public this winter it will be a real saving grace for the consumer who closely balances their income and costs. Extra profits for the power companies will come at the expense of other companies’ profits during the profit-rich Christmas period.

So, looking forward we are all potentially more interested in the decisions of the policymakers than we are in recessionary data to see where markets go next. From my side, I am asking the fund managers and portfolio managers to look for a return of profit without chasing high returns, as we are far from being on safe ground yet. It does really seem that the recovery has started and has continued since I wrote that it started some weeks back. But it is not time for throwing caution to the wind and going for broke – but then when is it ever…?

As always, I hope this is useful and a lot more positive than we have seen since December last year. I am pleased to not just be the voice of doom all the time. I do expect recovery and I said quarter three or later for the true start of a recovery, so let’s keep to to the plan and we should see some positives if the policymakers get a hold of all this energy mess. No crystal ball, but it all seems much more likely for a more positive outcome.

I know you will not hold me to this but based on what we can see, a positive but single-figure return across 2022 for most looks likely, with hopefully more to come in 2023. Given the crisis we are in I think that will be more than acceptable to most and we will see it as a good outcome.

Please all join me in sending the policymakers positive thoughts in their decision-making process, our profits are really in their hands this time.

Take care all and stay hydrated.