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Equities find a bottom?

Date: 22/10/2018
Category:

Last week started well with a nice bounce in equities providing a welcome change from the slide in prices of the previous couple of weeks. The only problem was the bounce proved to be of the dead cat variety with markets falling back subsequently to end the week little changed. All the same today, markets have opened higher today and are looking like they have found a bottom.

In the US, the Q3 reporting season has got off to a reasonably good start with the mega banks generally beating expectations and the S&P 500 expected to see earnings grow a hefty 20% or more. Usually this would be cause for celebration. But with economic headwinds growing and the peak in earnings growth behind us, it is unlikely to prove as much of a tonic as normal. The Fed looks set to continue gradually increasing rates and rising rates usually put equity valuations under pressure - although with equities already some 15% cheaper than at the start of the year, much of this de-rating is probably behind us. 

Back here in the UK, there was some good news for consumers.  Wage growth has picked up to 3.1% while inflation has fallen back to 2.4%. The markets, however, were much more focused on the EU summit which saw the UK move no closer to a Brexit deal. The EU was amenable to extending the 21 month transition period as a way of defusing the Irish backstop issue but this was met with howls of anger from the Brexiteers and talk of an imminent Conservative leadership contest is once again doing the rounds. With time fast running out, the risk of No Deal has clearly risen further. But our base case still remains that we will end up with one, albeit very likely at the eleventh hour as is the norm with EU negotiations.

We very much believe the recent decline in markets was just a correction rather than anything more serious and expect markets to recover further in due course. So, for clients with money waiting to be invested, recent weakness probably is a good entry point This is despite volatility remaining on the high side and prospective returns not being as large as in previous years. Overall, we remain comfortable with our underweight of equities generally and UK equities specifically.

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This message is not to be construed as a solicitation or offer to buy or sell securities and does not in any way constitute investment advice, nor should it be used as the basis for any investment decision. The information contained in this message has been prepared using all reasonable care. However, it is not guaranteed as to its accuracy, and it is published solely for information purposes. Our opinions are subject to change without notice and we are not under any obligation to update or keep this information current. The investments discussed in this message may not be suitable for all investors. KW Wealth does not guarantee the performance of any investments.  Past performance is not necessarily a guide to future performance. The value of investments may go up or down and you may not get back the amount you have invested. The income from an investment is not fixed and may fluctuate. The value of an investment involving exposure to foreign currencies can be affected by exchange rate movements which may cause the value of the investment to go up or down. KW Wealth and/or its affiliated companies and/or their employees may, from time to time, hold shares or holdings in the securities discussed in this message and may as agent buy or sell those securities.

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The value of investments and any income from them can fall and you may get back less than you invested. KW, KW Wealth, KW Protect, KW Wellbeing, KW Institutional, KW Partner and KW Private Office are trading names of KW Wealth Planning Limited (registered number 01265376), KW Investment Management Limited (registered number 06931664 ) and KW Trading Services Limited (registered number 03109469) which is a member of the London Stock Exchange. Each of these companies is authorised and regulated by the Financial Conduct Authority and has its registered office at 13 Austin Friars London EC2N 2HE. KW investment Management Limited is also regulated in South Africa by Financial Sector Conduct Authority. All these companies are wholly owned subsidiaries of Kingswood Holdings Limited (registered number 42316) which is incorporated in Guernsey with registered office at Regency Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 1WW.