There has been a notable change in market mood in recent months. US interest rate rises, the threat of an accelerating trade war and some volatility in emerging markets have all weighed on market sentiment. The S&P 500 may have hit new highs, but other markets – particularly emerging markets – have struggled.
More disruption may lie ahead. The US mid-terms promise to be a referendum on Donald Trump’s leadership. If Republicans lose control of the House, Democrats may be sufficiently galvanised to open investigations into the Stormy Daniels affair, or even start impeachment proceedings.
At the same time, economic growth may start to roll over. Inflation is gathering pace in the US and may force up rates faster than currently expected. The disruption is already being seen in the bond markets and equity markets may follow.
A number of commentators have pointed out that the recent disruption has made valuations look more attractive. However, the advice has tended to be that investors should aim to sell on strength, rather than buy on weakness.
In this month’s issue, we look at how investors might start to build defences in this type of environment. Within fixed income, Joubeen Hurren discusses the flexible approach of the Aviva Investors Multi-Strategy Fixed Income fund. Baillie Gifford’s James McAlevey shows that bells and whistles aren’t necessarily needed to deliver long-term consistency in a balanced fund.
The UK remains a problem area as the Brexit negotiations rumble on. However, Square Mile and AXA Investment Managers suggest investors are starting to take a tentative interest. It looks like a brave call, but perhaps certain investors are anticipating a significant rally should a deal finally be agreed.
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