Market Update 3rd July 2023

It all depends

Collectively, we have been trained to make goldfish look diligent. A week ago, the news was all Wagner and we all agreed Putin was toast. That is now all forgotten. Today we are writing disgusted letters to The Times about the despicable Aussies, or else heading to SE19 to wave a Union flag and think it funny to shout “Come on Tim”.

It is however worth spending a minute or so on the dismissal of Bairstow yesterday. The reactions have been manifold. The incident appears to have made a good number of presumably sane and rational people rather animated. So here is my investment-related spin. The sole fact here is that the English batsman was out. I know that to be true: it is in the scorebook. The narratives to this single, indisputable event cover a broad spectrum, and fires have been stoked. I now cease the cricketing puns and reflect merely that to both expert and amateur eyes alike, this one factual event could be ‘cheating’ by one party, ‘idiocy’ by another, or ‘that’s the way it goes’. There are neither right nor wrong responses.

Our investment fact for the morning is that last week Apple became the only US business to have an equity value in excess of $3 trillion. But is this the correct value? Well…yes, no and maybe. It all depends. Regrettably, it is no help to know what that dependency is. It all depends on what happens and the time at which one looks back to make one’s judgement. The mathematics of investment are, within reason, not terribly complicated. An understanding of them is. That is the art. Should Bairstow have been out? It all depends. Should one buy Apple at $194 a share? It all depends.

Equity markets had a slightly flattering end to the second quarter of the year. The large US technology stocks have enjoyed an astonishing run of form, as has the Japanese market. India has been none too shabby, whilst European equities are also having a largely sunny 2023. The standout exception is the United Kingdom, where our markets are struggling to hold their heads above water. Whilst it is easy to throw bricks in this particular greenhouse (and I am a habitual chucker), the extent to the which UK listed stocks are lagging is possibly surprising, given how little of the profits of our largest businesses are derived from the home market. It may be harsh, but the structural challenges that we have as a country (or four countries) does appear to be having a detrimental affect on companies listed in London, no matter how little justification there might be. And that is a shame.

If parts of the equity markets finished the quarter in good fettle, the opposite is true of the bond markets. The vigour with which many Central Bankers say they will attack inflation is spooking investors. Without casting judgement on the rights and wrongs the whole shooting match (everyone will know ad nauseam what I think), the world believes that the Banks are going to keep raising rates and are running away from bonds in general, and specifically gilts. Whilst we might, and do think, that this is throwing up some really very attractive valuations, we cannot deny that the unfortunate timing of the end of the quarter, coming at the end of the quarter, means that we shall all be reporting poor returns on our bonds over the past three months. That might in turn trigger another rant about the dangers of quarterly reporting of portfolio performance, but I shall save that for three months’ time.

This week brings Wimbledon, the Headingly test match, the Tour de France, the Hampton Court Garden Festival and the US non-farm payrolls. Rather like our wait for the value in gilts to start to show itself, like Vladimir and Estragon, we wait patiently for the pace of hiring in the United States to slow down. It will. And when this finally happens, the mood music will change. For now, the number the markets are looking for is an increase of 215,000 jobs. This is around 100,000 less than May’s total, but is still the highest expectation for a good while.

Jim Wood-Smith – Market Commentator and Head of Climate Transition

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