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July 2017 - Market Commentary

20th July 2017


Despite a highly uncertain political environment with elections in both France and the United Kingdom, equity markets rose modestly during the second quarter of 2017. Some gains were given back towards the end of June as central bankers across the globe hinted at a reduction of their previously supportive policy programmes. While it is unlikely that the support will be abruptly halted, the authorities are looking to equip themselves with the requisite tools to deal with future economic scenarios. The tide has also turned against governments’ austerity measures, with more voters now rejecting the belt-tightening ideologies which followed the debt-fuelled excesses of the last decade.


The UK’s household savings rate is almost at a fifty year low, having risen sharply during 2008-2010, while average earnings growth has remained lacklustre. Of course, low interest rates are hardly conducive to higher savings, but buoyant retail sales, leisure expenditure and personal car registrations arguably demonstrates that many consumers are not easily weaned from poor borrowing and spending habits. Furthermore, while the UK’s jobless rate is now just 4.6%, the economic recovery from 2009 onwards has been uneven. Together these features suggest the potential for problems in the future.


Elsewhere one of the strongest sources of market returns recently has been the US technology sector. The combined market capitalisation of Apple, Alphabet (Google), Amazon, Microsoft and Facebook would now place them as the fifth largest nation in the world, as measured by economic activity. We recognise that technological change is increasing, that the internet touches many advancing industries, helps drive efficiencies and improves countless aspects of our lives, but there are arguments stirring that the highly profitable owners of data should not only pay higher taxes, but face increased regulation and government intervention. While technology valuations are nowhere near as extreme as during the late 1990’s, share prices do not advance in straight lines and some profit-taking may begin to look prudent in this sector.


Despite equity markets having enjoyed solid returns over the past few years, we remain optimistic that further gains could still be made. However, a move towards higher interest rates by central banks may push bond prices lower and affect near term sentiment in risk assets. For the moment, we retain our gold positions and absolute return funds, as well as elevated cash positions to benefit from any setback.


Courtesy of James Hambro and Partners LLP.


Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made or given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions (but so that nothing in this paragraph shall exclude liability for any representation or warranty made fraudulently).



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