25 Aug At Last…The Correction!
We have been advising existing clients to take profits from UK and US equities for some time, whilst advising new clients to sit in cash rather than investing at what we regarded as unrealistic valuations.
Patience has been rewarded and as global markets have plummeted this week, we have been making partial investments.
The global sell off should not come as a surprise to anyone and should not give cause for concern. The strong equity rally owes as much to investor momentum, low interest rates and government intervention as it does to strong fundamentals.
The global economy is recovering and we remain positive about the medium to long term outlook, however, in the short term volatility is likely to continue.
Since the global financial crisis, governments have responded by reducing interest rates to almost zero and printing enormous amounts of money in a attempt to shore up financial markets. In the short term the strategy worked and most financial assets were given a boost. The reality for stock markets, however, is that companies have to make sufficient profits to justify share prices and this has not been happening in many sectors. When major global brands are manipulating their profit forecasts to boost the share price, it suggests that all is not as it should be.
As US and UK stock markets were reaching record highs, corporate valuations became stretched and it was only a matter of time before a correction occurred.
The global economy is recovering and we remain positive about the medium to long term outlook, however, in the short term volatility is likely to continue. New investors should see this as an opportunity and existing investors should sit tight and not panic!