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As duly predicted US equity prices are continuing their rise into the Thanksgiving break, all three major indexes hit record highs. Most of the headlines over the past couple of days, aside from the usual Brexit ones, is the failure of Angela Merkel to form a coalition government. The impact on the euro, the European stock and bond markets has been limited, as there seems to be no serious alternative to her. However, her authority will probably have been damaged by this failure and may have to cede some ground to form a new coalition.
Equity prices continued to take a well-earned breather in the past five days, the FTSE 100 has given back a couple of percent from the recent highs, the S&P has given back around 1% from its record highs. Equity prices were slow to react to the selloff in high yield bonds, however, this now seems to be the focus for investors. The S&P 500 took a boost on Thursday from the news that the House of Representatives had passed its version of the tax reform bill. There is still a long way to go before the president gets a bill to sign, now the horse-trading starts. Jim Reid, Deutsche Bank, was quoted in the Financial Times that he believes that some form of tax reform will take place but this is likely to be a first quarter event.
This Friday morning Paul Sedgwick featured on Bloomberg radio offering his views on a broad range of subjects, we plan to distribute the podcast later in the day. Amongst the topics that the interviewer looked for our views on are the US economy ahead of the proposed tax reforms, any thoughts ahead of Draghi’s speech later Friday and Brexit. Along with the recent selloff in equity markets.
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