Brief Market Commentary

The three main US stock markets, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all closed at record highs on Friday. US equities are the gift that keeps on giving. Aside from the fact the US domestic economy is in very good shape and the Federal Reserve, the US central bank has been very accommodating this year in terms of interest rate policy, shares were boosted by hopes of an interim deal between the US and China aimed at resolving their trade disputes. Asian markets also rose to six month highs on the back of these events. Interestingly the gold price has fallen since the beginning of the month from $1,514 to $1,459 per ounce on Friday. Gold is a safe haven asset that has rallied significantly in the last 12 months. This recent fall in the gold price is a clear sign that investors are feeling less bearish and are willing to rotate back to shares.

Since September there has also been a significant rotation from growth to value stocks. It is complex and difficult to describe exactly what these terms mean. In summary growth is where there is above average earnings growth or expectation of such. Investors buy on this momentum. Value stocks in contrast are companies that are undervalued relative to their earnings. This may be due to problems with the business or restructuring. Value investors expect prices to increase as the market recognises their inherent worth. Historically in the long term value has outperformed growth investment but since the global financial crisis growth stocks have been in the fore. Undoubtedly they are now looking expensive which is almost certainly a driver in the rotation to value. This could push US share prices even higher.

In the UK stock markets are unlikely to find their mojo until the outcome of the General Election and Brexit is determined. Businesses and markets hate uncertainty which is a barrier to investment. UK markets are trading below their earlier year highs. That said a lot of the bad news should already be priced in I am a little more optimistic looking forward in 2020.

The content of this blog is based on my own understanding of the global and UK economies and is intended as general investment information only.  Nothing in this article should be construed as personal investment advice, for example to buy value stocks. You should seek individual advice based on your own financial circumstances before making investment decisions.