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Quotidian Investments Monthly Commentary – June 2015

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July 5, 2015

The long-running and somewhat tedious game of poker being played between the Greek government and the financial leaders of the EU dominated market sentiment throughout the month of June and became the proximate cause of equity market volatility towards the end of the month.

The fact that the EU continued to supply substantial liquidity to Greek banks (not just once but on three occasions) in the last week of the month does indicate far more about the likely denouement of this ‘crisis’ than the meanderings of various political leaders.

In our view, the timing of interest rates by the Federal Reserve in the USA has a much more significant effect of the direction of stock-markets over the next year or two. Following the Federal Reserve policy meeting in June we heard confirmation from Janet Yellen that the pace of rate increases would be slow and measured, unlike the mechanical, robotic increases we were familiar with when Greenspan (the man whose financial stewardship of the US economy, in our opinion, caused the financial depression of 2007-2012) was at the helm.

In light of that, stock-market investors may have less to fear from higher rates than has currently been priced in.

Whilst the focus of the market was diverted by these two issues it is easy to overlook a large number of positives:

  • S. tax receipts were up 0.3% year-over-year in May which is remarkable given just 3.0% nominal GDP growth.
  • Despite the problems with Greece, the ECB’s balance sheet increased by 12 billion euros last week and is scheduled to continue to increase at least for the next year. This is part of the expanding global stimulus.
  • Key US data is all trending upwards:
    • Construction spending is up
    • Vehicle production is up
    • Vehicle sales are up
    • Trade is up
    • Unemployment claims are down
    • House prices are up
    • Small business confidence is higher
    • Employment is improving
    • Hourly earnings are improving and the number of U.S. job openings has finally surpassed the previous peak set in 2001.
    • Mortgage applications in the USA increased by 9.7% week-over-week.
    • Many countries are taking measures to spur growth

Evidence of economic growth continues to present itself and provides cause for optimism as a counter balance to the prevailing doom and gloom.

Of course a stock-market pullback is inevitable at some point but we believe that the concerns over Greece have now been overdone.

Generally, a market correction is defined as a decline of 10% or more. That hasn’t happened to the S&P 500 Index since 2011, although the index came close in the summer of 2012 (-9.9%).

We have had a number of pullbacks in the range -5% to -7% or so but it has been over 150 trading days since the S&P last declined by 5% or more, and more than 900 days have passed since the last 10% correction.

Our analysis indicates, though, that it usually takes no more than 56 trading days for the markets to recover from a 10% correction.

On 30th June the FTSE 100 closed at 6520.98 (which is –0.69% for 2015 to date). This represented a decline of 6.64% in the month of June.

By comparison the Quotidian Fund at the end of June was +20.79% for the same period….being a fall of just 0.74% in June.

We remain focused on protecting our gains whilst seeking opportunities to benefit from this period of volatility.

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