The last quarter of 2018 was indeed challenging for markets with various factors combining to generate significant volatility over the quarter and some softening of market performance.
The biggest contributors to recent market performance have been the US / China trade war and resulting stop-start trade talks. In addition an unprecedented guidance adjustment from Apple, citing weakness in China, caused the company to lose both its much hyped $1 trillion dollar market cap and its crown as the worlds largest company.
The market clearly sees Apple’s performance as a proxy for other companies as the announcement cased a general stock market sell-off.
In the following weeks other companies have cited some weakness in trading, especially in China and many UK retailers are struggling with a weaker Christmas sales period as has been widely expected.
As we approached the end of our investment review for quarter 4, we saw a spike in volatility and as such delayed our review work by approximately 2 weeks to allow for a like-for-like comparison.
Over the holiday period volatility persisted and between Christmas and New Year, we saw some of the most significant moves ever recorded in US stock market history. Over the 3 months to the end of December the US Market was down by around 11.9% and the UK fell by around 9.5%. Given their diverse, global nature, the Buckingham Gate portfolios are behaving as expected and are significantly softening some of these losses.
As we have entered 2019, relative calm seems to have returned for the time being and markets are showing tentative signs of recovery, although it remains to be seen if this will persist.
Ironically, despite the near constant media attention, Brexit (or the potential lack of) does not seem to have caused too much concern for markets, although the weakness in the UK market compared to others over the past 12 months suggests that much of the current uncertainty is now priced in.
It remains to be seen if any further clarity will be delivered by the parliamentary vote over the coming weeks or if (as is expected) a ‘no’ vote takes us back to square one in the Brexit process.
The Buckingham Gate investment committee will continue to monitor events carefully, however we don’t see that the events of the past 3 months are particularly unusual or unexpected.
The past decade has seen record breaking growth in most major global markets and so some easing off is to be expected. In addition, despite much media commentary about high volatility, the level of volatility we are now seeing is almost exactly the average. 2016 and 2017 are actually the exceptions to the rule given the extraordinarily low levels of volatility seen over these 2 years.
The largest indicator of a more permanent downturn in markets is a recession and although there has been some softening of data in some markets, recession would seem to be a way off at present.
There are some potential upsides to bear in mind. Brexit might not be as damaging as some people expect, the US and China could quickly rectify their troubles and retailers could quickly turn things around.
We will be managing the portfolios with our investment partners cautiously, taking into account the market environment we find ourselves in.
We would like to wish all of our clients and contacts a very happy and healthy 2019!