Quotidian Investments Monthly Commentary – February 2018
In our January report we highlighted the fact that a global stock-market correction was long overdue and the likelihood that the week-long fall back in the UK at that stage together with three successive days of negativity in US markets was evidence that a realignment of market values was underway.
The classic definition of an equity market correction is a decline of 10% in market valuations. A market crash is similarly defined as a fall of 20% plus.
As February progressed, the FTSE100 did indeed fall by 8.82% from its previous peak in mid-January (and, intraday, it did exceed a 10% drop on 9th February before recovering slightly to close at that figure of -8.82%). At close on 28th February the Footsie is still down -7.03% from its January high point.
In the USA, the S&P 500 index fell by 10.16% from its January high and is still down -5.54% at the end of February. The tech-heavy Nasdaq market fell by 9.70% (although, intraday, it also exceeded the 10% ‘correction’ level). The Nasdaq has now recovered to stand at just -3.10% down from its recent high.
We saw those market declines as an ideal buying opportunity and so we began to rebuild our equity holdings on market down-days to the extent that we were 45% invested throughout much of February. The last two trading days of February have given us yet another attractive chance to buy more and we will continue to buy on market dips until our ideal portfolio requirements are filled. The effect of these last two days of increasing our holdings is that we are now 66% invested.
On 28th February 2018 the FTSE100 closed at 7231.91, a fall of– 4.00% for the month and it therefore stands at -5.93% for the 2018 calendar year to date. By comparison the Quotidian Fund’s valuation at 28th February shows a fall of -0.28% for the month and it follows that the Fund is now up +0.52% for the 2018 year to date.
The UK stock-market is still in thrall to seemingly never-ending Brexit negotiations and, until a degree of clarity emerges, we see no great advantage to be gained from anything beyond minimal and sharply-focused exposure to it. It has been perfectly clear from the outset that the EU has no intention of negotiating a reasonable and equitable exit deal with the UK; it’s intention is simply to frustrate the process and (with the help of a motley collection of ‘useful idiots’) ultimately aim to derail the whole thing. We can but hope that some real leadership in UK political circles makes itself evident sooner rather than later.
In Europe, the Italian general election on 4thMarch may become an interesting and helpful feature of Brexit negotiations. Polls in Italy are predicting that the votes will be shared between the two largest anti-EU parties (but with neither party achieving an overall majority) and with the current Democratic Party regime (personified but no longer led by the EU puppet, Matteo Renzi) finishing a distant third.
Not only are the two likely highest vote-winning parties (Forza Italia and Five Star Movement) anti-EU, they are both anti-Euro too and have threatened to reject and replace the Euro as Italy’s currency. Sunday’s result will be interesting to say the least and it may well help the UK’s position in that it will create a second profoundly negative front to occupy the attention of the anti-democratic EU bureaucrats.
In the USA, its economy is clearly expanding and economic fundamentals are still very positive. Its new tax rules are helpful for the stock market and they also reinforce prevailing positive consumer confidence and spending. In our opinion these factors alone are bullish for the US stock markets.
In the past it has, on average, taken markets 56 trading days (roughly 3 months) to recover the ground ceded following a correction. We therefore anticipate continued short-term volatility but if that turbulence continues for longer than usual (or longer than we expect it to) then we have kept funds back to buy more of our chosen assets at even lower prices. In the medium to long term this is a very positive strategy.