Broomer's Blog

From the monthly archives: April 2017

We are pleased to present below all posts archived in 'April 2017'. If you still can't find what you are looking for, try using the search box.

May calls a snap election

After months of speculation about an early election in May, and perhaps thankfully for headline writers, May has surprised everyone by calling one in June. At first sight financial markets took fright at this news with the FTSE 100 falling by over 2%, but this was actually a reflection of the moves in the foreign currency markets where sterling shot up by 2% versus the dollar. With many of the UK’s largest listed companies deriving a large proportion of their revenues from abroad, a stronger currency has a negative effect on company profits. Political pundits and financial markets seem confident that a larger Conservative majority will result. If by some off chance Corbyn does prevail, investors should brace themselves for falls in both the stockmarket and the pound. Assuming the election goes as intended, it could ease May’s hand in her negotiations with the EU. We still don’t know if May favours a hard Brexit, which would be bad news for UK asset prices, or a soft Brexit which would b ...

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You've got to love this guy!

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me,”   Donald Trump.

For those more interested in facts, the dollar index is up 1.3% since the election result on 9th November.

Outlook March 2017

Markets are always guided by what's in the rear view mirror, and we've certainly passed through a particularly picturesque patch. Following a period of profits recession, earnings are forecast to hit new highs led by the rebound in energy and material companies. The key global economic blocks are all chiming in unison and this has lifted global GDP expectations to near 3% for 2017. Tax cuts in the US, solid growth in Europe and a pick up business and consumer confidence are all acting to create an air of heady expectation. Strong investment returns will provide clients with warm feelings as they review their portfolios but experienced professional investors have seen this particular movie many times before. We know all too well how quickly the script can switch from 'feel good' to 'a weepy'.

The S&P 500 is on 26x historic earnings and nearing 30x on Shiller p/e. The market is bifurcated between the cheap financials and anything that provides a steady earnings stream with a sound business model, many of which are now on 30+p/es. The bulls argue that this cycle can be extended through fiscal policy. Well it might, but when government budgets are already in deficit and labour markets tight, crowding out and higher inflation seems a more likely outcome. The Snapchat IPO highlights investors' festive mood. Such a debut will encourage other companies to list and together with the upcoming Saudi Aramco listing, this will increase the supply of equity to markets.

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