The only way is up! At least for now...

By Clive Hale, director, FundCalibre

Added 10th August 2016

1988. Until Monday morning, when I woke up to the news that Adam Peaty had won in Rio, 1988 was the last time a British swimmer had won a gold medal.

The only way is up! At least for now...

It was also the year that Yazz proclaimed: “The only way is up!” More 80s trivia from the 'young-uns' in the office, and the 'intellectual' response to my ramblings that markets only seem to be going in one direction at the moment – no matter what is thrown at them.

Brexit is being blamed for all manner of woes, on a global basis - not just in the UK. However, stock markets have reacted positively, shrugging off worries for now and rejoicing in the fact that central banks continue to back stop the markets.

When Carney lit the touch paper last week, the FTSE rebounded and the world followed suit. With everyone on summer vacation, it seems we've become a tad complacent and markets are just continuing their endless climb upwards, with new highs in the Dow and S&P.

This may well be the last hurrah in the US, before the weakness of the economy finally sinks in, but with employment data surprising on the upside last week, who knows? The US bull market has now been 'raging' for 90 months. The average bull market lasts for 54.

Unless something drastic happens in the rest of the world, the US market is likely to continue its rise until we get nearer the election date. As the campaign heats up, investors will be looking more closely at policy promises, trying to guess the potential winners and losers.

We've had a few clues already: both candidates are likely to be tough on the banks and we can always count on healthcare being a key debate subject. These two sectors combined account for around a third of US stock market capitalisation. So any changes could be significant for equities.

Then there is infrastructure. Clinton has said her infrastructure spending programme would be the biggest since World War II. The Republican candidate has Trumped this (couldn't resist, sorry) and said his will be double her amount. But will this spend be on highways, maintenance, construction or something else? We have yet to be told. How it will be funded is also a mystery and one which will the equity market will want solved.

As we get close to election day, the market is likely to go risk-off until after the vote, at which point, if Trump gets in, it might get a bit 'rocky' for a while, particularly for US companies that had the audacity to move their operations to lower cost locations like Mexico and China.

US investors have been favouring quality companies with a home country bias for some months – shunning their international large-caps in favour of smaller and medium-sized businesses. I would expect this to continue for the forseeable future. This plays to the style of some of our favoured Elite Rated funds, such as AXA Framlingon American Growth, with its bias towards medium-sized companies, and Schroder US Mid Cap.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Clive's views are his own and do not constitute financial advice. 

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