It has been a fairly peculiar week. Despite a sprinkling of TACO’s, the world’s major stock markets made decent progress. The main US index, the S&P 500, got the headlines for hitting another all-time high. Over the week Japan was on top, up 3.6%%, compared to the S&P at 1.8%. Japan benefitted from both cheaper oil (for now?) and the current surge in AI and semi-conductor linked stocks.
That same tech angle drove up Korea and Taiwan, as well as the tech-centric NASDAQ in the US, up 4%. While on Asia, if you have been surprised by chunky returns from any Asian funds in recent times this will almost certainly be because of a heavy exposure to Korea and Taiwan. Be wary. Don’t be afraid of clipping over-size profits in short periods – making profits is not too difficult, keeping them is a different matter.
The FTSE 250 was only just behind the US, at 1.6%, whereas the FTSE 100 was down by the same amount. You know that the 250 represents more domestically focussed UK companies. You might have expected the 250 to have struggled midst political turmoil, but equity markets are not very good at focussing on more than one thing at a time, and cheaper oil and the diminishing risk of higher interest rates were concrete reasons for a sigh of relief for UK plc. In contrast, the FTSE 100 has a few oil companies, which slipped lower with the oil price, plus a hit to HSBC.
Gold, silver, and uranium had good weeks, up 4-9%. The former two are still being bought by late-in-the-day punters on the coat tails of the S&P 500 and NASDAQ – the mania is broad, and still has life. In contrast, uranium has attractions in its own right (notably the demand from nuclear energy for many years to come), and the price is presently breaking higher.
How about that mania? The S&P 500 index, as anticipated last week, spiralled clean up through 7250. Some will argue it has now peaked, it’s all over. My best guess, I put it no more strongly for now, is another down (to around 7100), and a final hurrah to around 7400, not much higher than yesterday’s all-time high. It shouldn’t take too long for the shape to reveal itself. Don’t try and be too smart trading these shorter-term gyrations.
Overnight the voters across the UK sent a clear message that they want change. What kind of change?
If you don’t already, do try and find time to listen to The Rest Is History. Recently they did a four-parter on the UK in the 1970s. Part 3 on 1976 feels particularly relevant today. The Labour Chancellor Dennis Healey told the hissing and booing Labour Conference to get a grip and accept the unpleasant medicine of sharp cuts in spending – can you imagine a Chancellor of any colour having the backbone to do something like that today?
Within weeks the Chancellor had the embarrassment of going cap-in-hand to the IMF to bail out the UK. This all took place to a background of the Sex Pistols first single, Anarchy In The UK. With the election of the Labour government in 2025 I thought (hoped) there would be a textbook series of reactions in financial markets i.e. kneejerk sharp fall, great buying opportunity, decent profits ahead. That fall didn’t happen, even though Rachel Reeves was a rolling accident hot spot. It was the launch of the Trump/Netanyahu war on Iran and oil shock which notably darkened the mood and the outlook in the UK, and globally.
That dark mood, anger, and frustration came out in the overnight election results. Change is needed. We will see in the weeks ahead what that means in practice. In the meantime I couldn’t help but reflect on 1976. The most deep-seated, painful but necessary, changes tend not to emerge gradually, but are stair-step. That is what happened in the chaos of 1976 – bring it on screamed Johny Rotten, more anarchy – it reflected how many people felt – yet this chaos and anarchy signalled the bottom, more or less.
If we are now to go the way of 1976, things will need to get a lot worse before some re-set – it’s not a political re-set which is needed, but a societal one. That lies ahead, and for now we have Mad King Donald to entertain us.
Trump is off to China next week. There is a sense that he would either like to arrive in China with an Iran deal, or come away with one. Fingers crossed, though we’d best not hold our collective breath. What I find much more interesting is the persistent attraction of China.
China has had a good war, perhaps uniquely. China has more reserves of oil, natural gas, and fertilizer than the rest of the world combined. More on those fundamentals next week. For now I notice that after a healthy correction over recent months the Chinese indices look set to break higher. China represents 20% of the global economy, but few investors have even 5% invested. It feels just like gold 2-3 years ago – lack of interest in such a clear opportunity was a great buying opportunity.
Reflecting on last week’s story of Mr Shin, and his tortuous journey over years as his retirement fund was decimated, it would not have happened if he had applied a stop-loss. It can feel like the stop-loss is a negative tool, and certainly most investors are instinctively uncomfortable when selling at a loss, tending to sell winners instead – the exact opposite of what you should do most of the time.
Your stop-loss can also be a distinctly positive advantage when you might otherwise feel too nervous to invest. Knowing you have a stop-loss can give you the confidence to invest and stay invested. As I have been saying for years, the US stock market is overvalued, historically overvalued, but this absolutely clear vulnerability tells you nothing of timing, knowing when the bubble will burst. If you have a stop-loss you can accept this conundrum, and stay mostly invested, knowing that you have a robust plan to protect your investments.