2 steps forward, 1.5 steps back
The sharp move lower in markets only 7 trading days ago (11 June) was dramatic – one of the 20 largest down days in global stock market history and the eighth largest one day spike in the volatility index (VIX). The below chart shows the increased volume of shares traded on the Nasdaq this year.
Source: Bloomberg
This is a timely reminder that markets have moved significantly higher in price since the March lows, while the positioning of speculative retail investment (ie. day traders) is extreme, and the path of recovery in economies and corporate profits still very uncertain.
Source: Google
So what are some of the factors driving this uncertainty?
Near term economic risks are centred around:
The US election. Typically markets struggle to make progress in the 3 months preceding the presidential election.
A lack of further fiscal stimulus in the US and progress on the European recovery fund
Neither consumers nor commercial entities currently are in any rush to expand - leaving contractionary forces difficult to overcome
A still high level of COVID infections in the US (ex New York, New Jersey, Massachusetts and Connecticut)
Source: Bloomberg
Despite this and the recent dip, markets have rebounded strongly, and given valuations are materially higher today than the bottom in March and that these stocks / markets are dependent on the continued improvement in growth, it’s not unreasonable to expect some disappointment.
2 steps forward and 1½ steps back might be the motto for a while.
It’s worth remembering that this is not unprecedented. Last week’s ‘second correction’ is in line with history - as demonstrated by the VIX during the GFC overlaid with its path since December 2019 to now.
Source: Bloomberg
Finally performance and profits are also still uncertain. Earnings revision momentum declined again vs the week before at 21.5%. Momentum in revisions is uniformly poor across all regions – the worst being in the US where the last 3 months has seen negative earnings revisions in absolute terms of 33%, in line with Europe.
So where to go? True diversification, a differentiated income source and a strategy that not only smooths out the volatility but takes advantage of it seems like a good place to start.
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Chad is the Co-Chief Investment Officer and co-founder of Talaria Asset Management. He has more than 21 years of experience in the financial services industry in the UK, South Africa and Australia. Talaria's investment strategy seeks to increase the certainty of global equity returns for investors through its:
> Unique and structurally lower-risk investment approach that combines capital growth and income generation to deliver a more consistent return profile (smoothing).
> Portfolio of up to 45 large, globally listed companies.
> Internationally experienced and personally invested leadership team.
www.talariacapital.com.au
........
The information in this article is general information only and is not based on the objectives, financial situation or needs of any particular investor. In deciding whether to acquire, hold or dispose of the product you should obtain a copy of the current Product Disclosure Statement (PDS) for the Fund and consider whether the product is appropriate for you.
Wholesale Units in the Talaria Global Equity Fund (the Fund) are issued by Australian Unity Funds Management Limited ABN 60 071 497 115, AFS Licence No. 234454. Talaria Asset Management Pty Ltd ABN 67 130 534 342, AFS Licence No, 333732 is the investment manager and distributor of the Fund. References to “we” means Talaria Asset Management Pty Ltd, the investment manager. A copy of the PDS is available at australianunity.com.au/wealth or by calling Australian Unity Wealth Investor Services team on 13 29 39. Investment decisions should not be made upon the basis of the Fund’s past performance or distribution rate, or any ratings given by a rating agency, since each of these can vary. In addition, ratings need to be understood in the context of the full report issued by the rating agency itself. The information provided in the document is current at the time of publication.
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Chad is the Co-Chief Investment Officer and co-founder of Talaria Asset Management. He has more than 21 years of experience in the financial services industry in the UK, South Africa and Australia. Talaria's investment strategy seeks to increase...
Expertise
Chad is the Co-Chief Investment Officer and co-founder of Talaria Asset Management. He has more than 21 years of experience in the financial services industry in the UK, South Africa and Australia. Talaria's investment strategy seeks to increase...
Expertise
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