Here Lee Wild, Head of Equity Strategy at Interactive Investor discusses corporate American investment ahead of third quarter reports.
Decent economic data has kept records tumbling on Wall Street, and who’s to say this run will unwind any time soon. Overnight, it’s talk Donald Trump could name Fed governor and market’s choice Jerome Powell as Fed chair Janet Yellen’s replacement that’s driving sentiment.
Winning streaks like this are always difficult for investors, as the head keeps asking how much higher? It requires calm and nerve to hold stocks in these situations, even more to continue buying.
Valuations are toppy in areas of the market both in the US and over here, but history is littered with examples where investors tried to call the market peak and failed. The experts who’ve predicted a crash for more than a year have been wrong, and investors who’d followed their lead will have missed out on substantial profits.
So, there are still plenty of good quality stocks to buy, which are growing profits, pay decent dividends, and have great prospects. That said, corporate America begins reporting third-quarter results in a couple of weeks, and the numbers had better be good, given the size of earnings beats already baked into stock prices.
It’s a big day for ex-dividends in London, among them the third of Next’s 45p special payouts and WPP’s generous interim, which lands highly-paid boss Martin Sorrell another huge windfall.
Even with the impact of ex-divs, the FTSE 100 has significant momentum right now and there’s a great chance it will break above 7,500 soon, putting it within 100 points of a new record. Miners and supermarkets are flavour of the month Thursday.
With little of interest coming out of the European Central Bank’s September policy meeting, it’ll be interesting to see if today’s minutes give any clues as to tapering plans or thoughts about how to handle the strong euro.
After that there’s a jumble of data out of the US, although the chance of any major upset is slim. Many traders could be tempted to keep their powder dry ahead of tomorrow’s US non-farm payrolls.
The German stock market crash is a timely reminder of the need to broadly invest, affirms one of the world’s largest independent financial services organisations.
The comment from Tom Elliott, deVere Group’s International Investment Strategist, comes as the DAX, Germany’s top stock index, was nearing the red after shares in the country’s largest car makers dropped over a fresh probe into the diesel emission scandal.
Mr Elliott observes: “Eurozone stock markets have felt the pain of a strong currency in recent weeks, as investors think that improving economic data will force the ECB to curtail its bond-buying program prematurely and - if inflation picks up - lead to interest rate hikes.
“But the DAX 30, the key German stock market index, now has an additional problem that has contributed to recent falls. Its motor sector – led by BMW, Daimler and Volkswagen- is under a cloud as more jurisdictions line up to fine the companies over diesel emissions. Last week, the Mayor of London announced plans to seek compensation from Volkswagen after the true scale of the company’s diesel-fuelled cars’ contribution to the city’s air pollution became known. The sector is at risk of punitive fines across the world.”
He continues: “A further risk is that the ‘Made in Germany’ brand suffers more generally.
“However, while this is embarrassing for the German auto sector, and for German exporters more generally, it is likely to be a passing phase. The fines will be absorbed by shareholders, and meanwhile the German auto sector will return to the real long-term battle: is there a durable market for high quality, driver-driven, private cars?
Mr Elliott goes on to say: “German - and European autos’ biggest threat comes from technology from the US – in the form of driverless cars and battery cells, amongst other factors – as well as changing social habits, which include car pooling and young adults driving less in developed economies.
“The German stock market crash is a timely reminder of the need to broadly invest so that portfolios will have exposure to the young companies likely to benefit from driverless cars for example.”
He concludes: “Diversification of portfolios across sectors, asset classes and regions will ensure investors are best-placed to take full advantage of the present and future opportunities and to mitigate the risks.”
(Source: deVere Group)
