Investment Newsletter - February 2017

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Investment Newsletter February 2017

Making Wall Street “Great Again” It’s quiet out there. Perhaps too quiet? From reading the news you might conclude it is a relatively volatile time in world affairs, especially since President Trump took office and began to make his mark. The new executive seems likely to be very different to the previous administration in all sorts of ways, and some of their policies will affect various companies and sectors dramatically. Some of this will be positive, some may well be quite negative.

Mike Deverell Investment Manager

However, this uncertainty and volatility is not present in markets right now. At the time of writing there has been a record 41 days without a 1% intraday move on the S&P 500. The previous record was 34 days, as seen in Chart 1 which goes back to 1962. After a surge late last year, markets have become much flatter recently. The trend is still positive but each daily

movement is now much smaller. It is almost as if we are in “wait and see” mode. Low volatility might seem desirable, however it can also be seen as a sign of complacency in the market. Economic theory suggests that the longer a period of stability, the sharper the instability that follows. Investors begin to assume that the low volatility will continue indefinitely and begin to take on more risk. The longer we go without a sharp pull back, the more investors believe the more optimistic predictions and the less attention they pay to any less positive evidence. Periods of very low volatility in markets therefore tend to precede much sharper moves. Markets won’t remain this calm forever but we wait to see what will be the catalyst for change and whether that catalyst is positive or negative for markets.

Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.


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Investment Newsletter - February 2017 by Equilibrium Financial Planning LLP - Issuu