SM Market Update


July Market Update from Square Mile Investment Services

In contrast to the turbulence of the first quarter, markets made steady gains through much of the second.
Stockmarkets were led higher by the US, principally driven by the stronger dollar and also aided by a generally positive series of company trading updates, as the benefits of Trump’s tax cuts begin to feed through.

For the moment, the launch of the US trade war has not had a material impact on developed markets.

The billions of dollars in new tariffs may sound alarming but these are actually small sums in relation to the entirety of the huge US and Chinese economies.

Roughly speaking, these economies are around a thousand times larger than the additional costs created by the tariffs introduced so far.

What tariffs do represent is a change of direction. For decades, the global economy has benefited from the freer movement of goods,
capital and labour. This has helped spur growth and kept prices low. This tailwind now seems to be turning into something of a headwind. Although it may take time for the effects of this subtle shift to be fully felt, it is a negative for long term investors.

President Trump has become increasingly aggressive ahead of the important US mid-term elections that will determine which party controls Congress. Many of his policies come with very significant associated risks.

For example, the tax cuts are unfunded and leave the government’s budget in a vulnerable position. The tax cuts are designed to accelerate America’s growth rate, in contrast, the US central bank is lifting rates in an attempt to moderate growth to prevent inflation emerging.

This could still work if productivity can be improved, which would be great for investors, but we have our doubts.

‘Trump’s policies have distinct risks’

If it fails, it will leave the US over the medium term with a very unpleasant economic conundrum of how to address a gaping budget deficit.

Of late emerging markets have fallen in value in contrast to the gains seen in more developed markets such as the UK and US. Emerging markets tend to do better when the supply of dollars is plentiful and cheap. At the moment demand for dollars is high and the cost is climbing as interest rates rise.

We believe that more important is the outlook for global growth, which we still view positively despite the threat that a trade war
brings. Emerging markets are also priced cheaper than developed nations and we view this as an opportunity given their stronger growth trajectories.

Overall, we think that Trump’s tax cuts will act to extend this period of economic expansion and possibly the bull run in markets.

However, we have serious reservations whether these and some other new policies will have a beneficial long term impact on global business. We think the risks of an economic mishap are increasing and this would leave the fully valued markets vulnerable.

Markets may make further progress higher in the short term but we believe that the risks of a material reversal are climbing over the medium term. This is not a time to be aggressively positioned.




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Important Information
This document is for the use of Professional Advisers only and is not intended for the use of Retail Investors.

Square Mile Investment Services Limited makes no warranties or representations regarding the accuracy or completeness of the information contained herein.

SM does not offer investment advice or make recommendations regarding investments and nothing in this document shall be deemed to constitute financial or investment advice in any way. This document shall not constitute or be deemed to constitute an invitation or inducement to any person to engage in investment activity.

Past performance is not a guide to future returns and the value of capital invested and any income generated from it may fluctuate
in value.

Square Mile Investment Services Limited is registered in England and Wales (08743320) and is authorised and regulated by the Financial Conduct Authority (625562).

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