Thoughts on short term market direction
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That decisive win has given the markets a nice bump in the right direction. Bravo Adam/Nik/Donald/Whoever else we should thank.
I read somewhere that there is an 'uncertainty index' which dropped sharply when Trump was elected. Given that it's often said on here that markets hate uncertainty then this is presumably a good thing. (And if anyone can suggest some links so I can learn more about this uncertainty index that would be great. My Google-fu is failing as I can find lots of references to market uncertainty indexes but nothing that looks quite like what I am looking for.)
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Morning O,
No doubt uncertainty drives market prices. But I would ponder, how does one measure it and what uncertainty are you trying to measure, a macro event or if company X will win that contract and earn more money?
Here's one. Most might be certain that PHE +1.8% yesterday was just down to the stock market, generally. It wasn't. FX added 1.1% and 0.7% can be directly linked to specific portfolio changed we implemented in regards the weights.
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The Vix is historical volatility. It doesn't factor in specific stock selection process other than a general view on the market. Yes it's volatile but is irrelevant at the company level and also when you take the investment long term view approach. Im sure traders look at it along with their candles.
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Well, I couldn’t have been more wrong about the US election, eh
It seems clear that the markets like the result, which renders my thoughts on it pointless
I wonder how well things will continue.
Trump has something of a checkered history on making predictable decisions once in office. The only one I will make is that the increased application of bronzer will continue unabated 🤪Do we think the fact that companies are broadly releasing very positive results bode well for the next 3/6/12 months?
(with the strong caveat that this is ALL banter and not in any way advice!!)
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Hi Mike,
As previously mentioned, we speculated that there would be a snap reaction to the result either way however cautioned against implementing an investment strategy based around it. It was always going to be a coin flip which largely shifts back to fundamentals and the economy-as you touch on.
Corporate earnings have been largely good. 75% beating expectations. Amazon reported solid results, Msft were very good and Meta results were exceptionally good. The only reason these stocks didn't move even higher on earnings date is due to their increased capital spending on AI capacity. I find this rather odd given Meta is generating very high income from its 'AI insights' models. Secondly, the respective CEOs know what they are doing, have a proven track record of success and have a goal (road map) which requires significant investment now which they anticipate will pay off in spades, in the future. Nadella is an exceptional CEO (as is Zuckerburg)-we are investing in the man perhaps even more than in the company.
I would expect the wider market is now awaiting Nvidia results, Nov 20 before it reasserts the trend.
Regards
Adam
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So….to resurrect this little thread….
Any thoughts on how the markets will react to the trade tariff wars that are appearing to escalate?Feels like we are entering uncharted territory…I can only see these tariffs causing US consumers to pay more for things….& likely much of the rest of the world too, as Counties inevitably respond with tariff’s of their own. Are we to focus on “Buy British” more? Supply chains are very global these days…
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Hi Mike, I think you are getting ahead of yourself. Right now Mexico and Canada are impacted. Why? Drugs and people crossing the border plus it's a penalty for all the global firms setting up shop in Mexico. Re Europe, what does Trump want? For them to pay for their share of Nato. What does he want from China? Stop the dumping, behave better. China won't budge imo. Let them duke-it-out.
Right now Foxconn servers will be hit-SMCI will not. Potential winner. TSMC is about to start producing chips in Arizona with more to come-it is usual to get an exemption from tariffs if you agree to move production facilities. He may give TSMC an exemption. I do not see him hurting his real ally's or their most valuable companies. Trump wants more critical tech make in America and he will no doubt achieve it without imposing tariffs.
Like many things, guessing and speculating is to be avoided and there is nothing we can do.
A reminder of what a tariff is. It's a tax on the price paid at import. A GPU which sells for $30k costs about 4K to produce, so worst case it now costs $5k so could sell for $31K or maintain a $30K and impact margins by 3% worst case. To date no taxes have been applied other than Mexico/Canada and given those Foxconn servers could be 100% finished in Mexico, 25% on $3M will make them uneconomic to produce. As I said a big win for US made servers. It is important to understand how products and their components build up 'the cost' of a finished product.
We know ai servers are low margin. Right now anyone buying a Foxconn server(made in Mexico) will pay 25% more! The same server made in America now costs a lot less.
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A reasoned reply….although it still feels to me like he risks bringing inflation up with a probably spate of “tit for tat” tariff responses (Canada with the first).
He wants to bully nations into doing things, just so he can eventually claim a business victory, as he bases his entire persona on being the master of the deal…
….but mean while, the price of goods (gas, eggs, etc)will only get higher.
Is that good or bad for the markets?!As you say, there is nothing we can do….but we can move our investments about: stock to money markets or bonds, for example. Or indeed the other way, if you feel bullish!
Does the investment committee for IML consider these things, or is no action considered necessary? -
It's entirely possible it will be inflationary-if it is prolonged. Tarrifs won't have any real impact on companies like MSFT or GOOG, Apple can, to some extent source some hardware from India. China sales are from China made phones-no tariffs. So the impact won't be what you might think.
This is a fast paced political issue which will work its way out to a conclusion-most likely. Making tactical asset allocations and effectively guessing what's next should be avoided.
It's the same logic with the FTSE-Trump is suggesting no tariffs on the UK, so all of a sudden the UK with thrive? 20 years of inefficiency and under performance now over? I don't think so.
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Breaking- Foxconn shares are down 10% due to their massive exposure to Mexico, in particular their AI server plant which will now be crushed by US tariffs. Will SMCI get a boost? They surely must but will the market be smart enough to realise it?
In response the Taiwan government has immediately started diplomacy and initiated assistance to local companies-helping them relocated to America via investment assistance and support to attend large US made events which could lead to securing partnerships.
That didn't take long did it. For a long time America wanted the sub 3 node from TSMC made in America and TSMC to date has said it will only produce their best chips in taiwan-hmm, I think that may now change.
As we have said before, Trump doesn't want to tax Taiwan, he wants a fair deal. He wants critical tech made far away from Beijing.
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The market drops seen today have been the Asian and European ones. However I think that IM/Cobens have almost all their investments in the US markets, which will be affected differently to the Eur/Asian ones as they are on the other side of the tarriffs. Is it expected that the US markets will also go down, or will they go up?
The $ has strengthened against the £ slightly today (about 0.5%). Surely this will lead to a slight FX boost on the IM/Cobens positions? (It'll probably be short-term, but still a boost.)
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All markets will react in the short term-the USD will strengthen as a result of perceived inflation keeping rates higher for longer, a positive if you hold USD denominated assets. The take away here is, we just don't know what the US administration is going to do, I'm not even sure they do, entirely. There will be a lot of talk to effect a behavioural change in some countries.
The media will try and frighten as many people as it can. The most likely scenario is that after the initial threats, a middle ground is reached. remember, these tariff threats were campaign promises so he's got to 'deliver' something. For how long and the true driver of them is a bit more opaque right now.
The Investment Comm met at 12pm to discuss all available information and we are watching the situation closely. No knee jerk reaction will be made where we materially change the asset allocations.
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The opening sell off 2.5% was supported by heavy buying at 3.30 with most of the dip recovered. Many holdings are actually up. Net, the impact is relatively muted so far. Volatility will no doubt remain as the markets remain 'news' driven.
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Trump delays tariffs effective date by 1 month. Talking already
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The delay is for Mexico only as following discussions, President Pardo agreed to deploy 10k national guard members along the border to combat drug trafficking.
