MARKET UPDATE Following the recent market uncertainty of the last few weeks, I thought it would be prudent to provide you all with a brief market update and some further explanation for your consideration. The equity market correction was triggered by the US Federal Reserve chairman Ben Bernanke’s hint at the end of May that there could be a scaling back of the third round of Quantitative Easing (QE3). On the basis of improved economic data, Bernanke raised the possibility of a wind-down of the pace, or taper, of the programme. Unfortunately, global markets interpreted this as tightening and not tapering, equities dropped sharply. Following the Federal Open Market Committee’s June meeting, Bernanke confirmed that the beginning-of-the-end of QE3 is in sight. He went on to say that a gradual reduction of the monthly asset purchase programme would begin later this year, if the US economic outlook improves as predicted. The tapering of QE3 would continue until mid-2014 assuming the US unemployment rate falls to 7%. Bond yields rose and the US dollar strengthened on Bernanke’s statement, while equity markets around the world took fright and underwent further corrections. Back in December 1996 Alan Greenspan, then the US Federal Reserve President, gave an excellent speech discussing amongst other things the role of central banks in society, but also suggesting that investors could be guilty of irrational exuberance in their behaviour. In fearful reaction to this somewhat innocuous comment, the equity markets sold off sharply with the S&P falling 3.8% over the following week. (Source: Christopher Aldous CEO Evercore Pan Assett Capital Management Ltd) Nothing, however, had really changed in terms of the outlook for equities. The US Federal Reserve continued with its stated policies and equities recovered all their losses within only a week going on to gain by 9% (from pre-speech levels) in two months and 20% in the next 6 months. (Source: Christopher Aldous CEO Evercore Pan Assett Capital Management Ltd) Equity markets have risen over the past 12 months on signs of recovery in the global economy and central bank action. A slow but definite improvement in the global economy, particularly in the US, is now emerging. And crucially, in the short term, central bankers have taken concerted and radical steps to avert an economic crisis to follow the financial woes of 2008/2009. There will likely be more volatility going forward as we move through the uncomfortable phase during which central bank life support is turned off and the economies begin to breathe on their own. Perceived wisdom would suggest a volatile market is not a time to panic but a time to focus on your original long term objectives. If you wished to review any aspect of your current portfolio or financial planning please contact the office on 01722 413348 where one of the team would be happy to assist. This update is our view of the current market situation and does not represent investment advice. If you would like impartial advice please contact our office and we will be pleased to help. The capital value of your investment can fluctuate and can go down as well as up and is not guaranteed.
Posted on: Mon, 01 Jul 2013 11:21:02 +0000
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