In the January Blog I suggested that, with the US and UK equity rallies still quite fragile, another bout of weakness would come as no surprise but that such a downturn could well provide the last major buying opportunity before the next bull market begins to form. We are now seeing that weakness and the judgement now is how long it will last and how deep will it be?
In February my rather less clever prediction was that the firm performance of the FTSE 100, driven by the banks and resource stocks at its core, should continue. The collapse of Silicon Valley Bank and two other minor banks in the US rather undermined that firmness with the upshot that the FTSE 100 has since lost 6%. You can’t get them all right but at least I preceded the forecast with the rather less specific suggestion that the set of circumstances prevailing wouldn’t last forever. However, stating the bleedin’ obvious earns me no points.
The Federal Reserve in the US and the Bank of England acted swiftly to repair the SVB damage. In the US SVB deposits have effectively been guaranteed and at home the sale of SVB (UK) to HSBC for £1 was promptly engineered. There was much gnashing of teeth that one of the challenger banks wasn’t given the opportunity but I believe the HSBC deal was the correct call. It was imperative that confidence in the banking system was restored immediately so it required one of the big beasts to absorb what, to it, would be a minor problem. A deal with a small bank only risked transferring the loss of confidence to that bank with the possibility of initiating a domino effect. As it is, the UK banking system is very well collateralised, as is the US in the main. That can’t be said for all of Europe so it is no surprise that worries have transferred to this area. I’m sure the Swiss will sort out Credit Suisse but who knows how confidence will hold up in some of the Italian banks?
So back to the buying opportunity referred to above. Do we buy now or wait? The point at which a bear market/phase ends and the bull begins is not definitive and is usually only properly seen in hindsight. Readers sufficiently long in the tooth might recall that, during the financial crisis of 2008/9, I began looking for the market bottom in late 2008 suggesting we were within 10% of the nadir. As it transpired that figure was almost spot on and the market bottomed out in February 2009 but, in all honesty, it was only the return of confidence that provoked that rally and that could have been triggered at any point during that period. Nobody really knows what the catalyst is until it has happened and even then that confidence has to hold for the recovery to properly establish itself.
For those with cash to invest I believe it is now time to begin doing so but dribble it in on weakness over the next month or two rather than be too gung-ho about it. For those looking to sell I think a much better opportunity will arise later in the year. I believe the current banking worries will dampen central banks’ intended interest rate trajectory but that inflation will fall sharply anyway.
As I write my last Blog before retiring at the end of the month, I suppose I am a bit disappointed not to be departing on a high but I do so convinced that much better markets lie ahead and I leave a very capable team to navigate them. I thought I would just finish with a few lessons I’ve learned over the years:
The very best to all readers.
Russell Dobbs FCSI
Chartered Wealth Manager
