There has always been some truth in the old rule that the time to start selling is when the bears begin to get bullish. I am, and always have been, an instinctive bear, however I have to admit to having been on board the risk rally which has carried us for the past few years based on the simple argument that the so-called risk free investment, being government bonds, have done very little for investors in financial assets and that therefore the money flows have had to go towards equities with their concomitant dividend streams as much out of necessity as out of conviction. Whether that stance turns a bear into a bull or simply into a pragmatist would make a good discussion topic.

After Mr Trump's election came an eye-watering US stock market rally. US markets created for themselves a Goldilocks scenario of lower taxes, higher infrastructure spending and reduced regulation and off they went, buying the living daylights out of any stock which looked to be on the winning side of the new paradigm. What they have got so far is muddled repeal, an attempted replacement of Obamacare, a string of attacks on the security services and a rumbling scandal over the depth of contacts between Russia and the Trumpists which some are already touting as being the next Watergate. I don’t know how many out there still have the clear memories of Watergate which I do but adding “gate” to everything from Camillagate to Penelopegate has surely blunted the appreciation of the devastating impact on the United States which the real Watergate affair had. If the Russia thing gains traction, which it might quite possibly do, then US stocks could be in for a prolonged period of real nastiness. And let's not even mention North Korea.

Looking at the way the US indices have traded in recent days one might wonder if the raging bull is tiring and so pausing for a breather and a spot of consolidation, something every market bull knows is needed and necessary.

US Q2 earnings were generally good and point in the right direction despite equities looking rich on historic valuations and particulrly in light of some regular upward shifts in the US yield curve in recent days. There are therefore arguments supporting both the view that we’re going through a healthy consolidation move as there are that this is where the wheels begin to fall off.

The crystal ball remains cloudy!


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