Macro Breakfast 2019
Banque Transatlantique London Branch hosted its first Macro Breakfast of 2019 at The Royal Institution in Mayfair.
Chief Investment Officer, Robert Jeffree, observed that though 2018 may have felt like a volatile year in terms of asset prices, it was in fact a return to the status quo. After the abnormally tranquil 2017, the variability of daily percentage price changes in equity markets had returned close to its long run average.
In December, the falls in equity markets felt severe. During this period we were reminded of two rules of thumb. Firstly, stocks that rise the most have furthest to fall. Contrast the heavy falls in US tech stocks with the more modest volatility of the previously battered emerging market equities. Secondly, there’s diversification in good, old fashioned government bonds. US treasuries, UK gilts and AAA rated European government bonds all served to protect the value of our client portfolios over the fourth quarter. By Christmas, some fantastic entry points for uninvested cash were selectively present in both equities and corporate bonds.
So far in 2019, the rally in risk assets puts us in a more neutral position in terms of valuation. Both European and US equities are close to historic average valuations relative to earnings. However, with continued downward revisions in earnings forecasts and disappointing corporate results being punished heavily by investors, active stock selection is of increased importance.
While there is continued weakness in manufacturing and global trade data, the US is still performing well domestically. Wages are rising, unemployment is at a record low and leading indicators in the relatively large service sector are positive. Think final phase of the economic cycle leading to a soft landing rather than imminent recession. The slowing Italian economy and the effects of French social unrest aside, domestic Europe also exhibits many of these positive signals. In the case of lasting positive news on the Trade War and/or Brexit, active investment in domestically exposed assets such as small and mid-sized companies, consumer discretionary businesses and, with caution, bank equities and bonds could be beneficial as we go through 2019. In the case of continued uncertainty on the Trade War and/or Brexit, we will likely see another ‘normal’ year in asset markets in 2019!
The next Macro event will be held on 25th April 2019.