In this week’s film, Monique Wong, Senior Portfolio Manager, assesses how sentiment signals could point to a possible upward shift in growth expectations in 2017.
OUR KEY MESSAGES THIS WEEK ARE:
UPBEAT SENTIMENT CONFIRMS RISK-ON MODE
Investment markets are in risk-on mode, supported by rising business sentiment and a flurry of glowing macroeconomic data on jobs and trade.
While global growth in 2016 was generally solid, looking ahead we believe there are encouraging signs of a stronger improvement for the coming months. Overall, this should support our overweight stance in equities and risk assets.
In the US, optimism on economic growth from business leaders saw its largest single-quarter gain in five years while record shipments of technology products helped US exports rise by 2.7% to $190bn, an 18-month high, according to data released by the US Commerce Department last week. In addition, January jobs figures released last week saw the US economy add 227,000 payrolls, well above market expectations.
News that president Donald Trump had signed an executive order to look at ways to scale back the 2010 Dodd-Frank Act – to ease regulation on Wall Street – also added a fillip to the markets. However, we continue to monitor President Trump’s ability to maintain the feel-good factor for both the economy and business.
MOST EARNINGS ARE IN, AND SO FAR SO GOOD
It is corporate earnings season and while the bulk of UK companies are set to report in the next week or so, most US companies have already reported fairly robust earnings. Earnings are up 5% for the fourth quarter 2016, driven by the technology and healthcare sectors.
While earnings in the technology sector have been reflected in rising equity values, the same hasn’t been true of healthcare companies, which still lag the gains made by the S&P 500 in recent weeks. The performance of the healthcare sector has been underwhelming on a relative basis since the post-US election bounce of November when news of some loosening in drug approval regulations gave healthcare stocks a boost.
However, in our view, the good numbers for many healthcare companies are a reminder that this is a very solid sector with strong fundamentals. Much of the bad news is already priced-in and we believe that incremental positive news should see a response on the upside. In this regard, we continue to favour US healthcare.
PORTFOLIOS SOLID ON BONDS VIEW
While past performance should not be taken as a guide to future returns, January was a solid month for Coutts investment portfolios. A typical balanced portfolio within our Tailored Portfolio Service was up by 0.8% compared to our peers, who experienced a flat month.
Being underweight in UK gilts relative to equities contributed to the outperformance, as did our preference for financial credit and emerging market equities.
Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
Values in Percentage 12-Month Investment Performance to the end of the last quarter Dec 11 - Dec 12 Dec 12 - Dec 13 Dec 13 - Dec 14 Dec 14 - Dec 15 Dec 15 - Dec 16 Defensive Strategy Composite 5.2 2.7 6.4 0.8 8.4 Government Bonds 2.7 -3.9 13.9 0.6 10.1 ARC Cautious Private Client Index 5.8 5 4 1.3 5.1 Balanced Stragey Composite 6.4 8.8 5.5 1.3 12.2 FTSE 100 10 18.7 0.7 -1.3 19.1 ARC Balanaced Private Client Index 7.7 9.2 4.5 1.9 8.6 Growth Strategy Composite 7.7 12.3 4.7 1.4 16.2 FTSE 100 10 18.7 0.7 -1.3 19.1 ARC Steady Growth Private Client Index 8.9 12.5 4.7 2.3 12