Market Commentary - Summer 2008 - 2008-07-01
In June, global markets suffered another setback as inflation fears resurfaced. These were driven primarily by the oil price, which broke another record, spiking up through $140 a barrel. Falls in markets in June wiped out what had actually been a reasonably strong start to the quarter. However, falling house prices and tighter credit lending has knocked UK consumer confidence. This has been reinforced by hawkish comments by the Governor of the Bank of England, Mervyn King, who warned that real incomes will likely be squeezed as living costs rise. In the UK, the credit crunch continues to have a severe impact on the financial sector as banks seek to strengthen their balance sheets. Manufacturing and construction have suffered amid soaring costs and a falling house market. Given the make-up of the UK workforce weighted towards these sectors, and the pressure there is also on the state (the UK’s largest employer) finances, it is not difficult to foresee a rise in unemployment later in the year.
As mentioned last quarter, it is worth bearing in mind that the current levels of investment markets will of course have already priced-in some degree of future bad news. The broad FTSE-100 has fallen -10.8% since the start of the year, and certain specific sectors have fallen much further than this. History shows that the average bear market (defined as a 20% drop in a major index) lasts around 18 months, and markets have now been in decline since last summer. Therefore we may be someway through the current bear market in certain sectors. Again, it is worth reiterating the mantra “time in the market, not market timing”, and to once again stress that by selling assets at low levels, one would simply be crystallising losses and removing any future recovery potential.
Opinions expressed represent the views of Stan Gaskin Ltd at the time of writing, They are subject to change and should not be interpreted as specific advice. Please discuss your personal circumstances with an adviser prior to making any investment decision.
