Tatton’s investment team held its in-depth investment committee meeting this week, where we reflect on how the economy and capital markets have developed relative to our expectations from previous meetings and what may have changed that would justify a change of direction. As laid out last week we are currently holding a neutral position across portfolios. This is because the central banks’ indications to ease monetary policy once again have driven bond yields down and equity valuations up, but their stimulating effect has yet to filter through to actual activity level improvements across the global economy, and as a result corporate earnings growth has fallen behind the upward surge dynamic of stock markets.
While this may, over the shorter term, defy the economic rationale that governs the longer term direction of capital markets, there is also the US mob’s adage ‘Don’t fight the Feds’ which investors have adapted to ‘Don’t fight the Fed’ – the US central bank, not the FBI. Periods of this type of market dynamic are uncomfortable because it is hard to project how long investors will accept bad news as good news in return for central bank liquidity, however these periods tend to be very profitable while they last, as the very positive returns for 2019 thus far prove.
