Thought it was about time I put pixels to screen and share some thoughts on what's been going on in the world recently. Well after another shock poll result we are looking forward to seeing the new oldest ever President in the White House next year. Now this has not stopped the market reacting in an unexpected fashion to this with the initial predicted plunge being replaced by all major US indices now soaring to new all time highs. I certainly can't recall any pundits predicting that, which just goes to show the perils of listening to pundits and forecasting in general.
Talking of forecasts we had the Autumn statement from the new Chancellor of the Exchequer in the UK this week with all its details and forecasts extending out to 2020 and beyond. Within this of course there were some downgrades to the previous long term forecasts which were put out just nine months earlier in the budget. Of course the blame for this is being laid firmly at the door of Brexit, but I also note that the recession for next year that was forecast by the remain campaigners has now mysteriously failed to materialise so far and in the forecasts too. So again this goes to emphasise the perils of forecasting and indeed relying too much on forecasts as these may be wildly inaccurate and subject to revisions. Therefore I'm not getting too concerned about or depressed by the pessimistic outpourings from the Institute of Fiscal Studies about real incomes stagnating for the next few years, although who know they could be right?
Having said that though markets are obviously taking a view on some of these changing trends as President Trump signals a fiscal reflation with tax cuts and a ramp up in spending planned. It is possible that this may lead to a decline in the influence of the Central Banks perhaps, but does seem to make it almost certain that we finally see another rate rise in the US next month. investors nevertheless seem to expect this fiscal reflation to boost to the economy and have therefore rotated out of bonds and into equities causing the moves we have seen in equities and a rise in bond yields. Whether this represents the start of an overdue normalisation of interest rates with higher inflation remains to be seen, but it does also suggest that markets also see less chance of a US recession next year - which is a good thing for equity investors. Similarly with the seeming absence of a recession in official forecast in the UK it seems that this cycle and the on going bull market might just be extended further into next year. This view is also being supported by the on going strength in the underlying equity indices and the recent further tick down in the US employment rate last month.
It has also meant that within the stock that we have seen a rotation from expensive, quality, defensive companies and bond proxies like Utilities, into growth and cyclical plays which will benefit from stronger growth. If the reflation view continues to prevail and the extra spending actually brings a boost to growth then some of these moves may prove to be justified and sustainable and indeed could have further to run. So if you share the view that this spending will help to boost the economy then more cyclical sectors may be a good hunting ground for cheap stocks especially if they have not moved significantly already.
On the other hand though some quality and defensive names have sold off quite aggressively and are therefore now offering better, if not outstanding value. These moves may therefore provides some opportunities to pick up some quality income / growth stocks for the long term at more reasonable prices, which may not be a bad idea if you think the boost from the increased spending will not be that great or long lasting given that it will come at the expense or further rises in debt. Personally I'm more interested in looking at the latter rather than chasing cyclical which will no doubt let you down again at some point come the next downturn.
As ever time will tell on the success or otherwise of Trump's policies and the UK's exit from the EU, but as ever its probably best to focussing on the underlying fundamentals of the shares you are interested in and not getting too worried or excited about all the economic news and views and the daily gyrations in the stock market.