There's an old adage that opinions make markets. And anyone who has spent time committing capital would agree that the more diverse the set of opinions on a topic, the richer the opportunity to profit.
In the US, conflicting narratives on the health of first quarter earnings and more fundamentally, the economy, are undoubtedly catalysts for anaemic returns for large capitalisation US equities. Viewed through the prism of the transport sector’s performance, a durable economic slowdown is a near certainty. Belying this line of thinking is the strong performance of smaller, domestically-focused companies.
Oddly, against the backdrop of diverging returns, not only within the US market but relative to other markets, especially Europe and the UK, views about economic vitality and questions about central bank policy and efficacy, volatility has been remarkably quiescent.
It strikes one as a picture of complacency borne of certainty which is not what a read of market chatter confirms. Or does it? In the eurozone, the European Central Bank affirmed its quantitative easing programme during its meeting last week, lying to rest musings about an early end to the effort given the response of the bloc’s equity market and a clutch of economic data. In the US, investors appear unanimous in their view that the Federal Reserve will postpone changes to interest rates until later in the year. In the age of central banks, views about monetary policy are important.
While the vast sums of money summoned forth by central banks have done little to create jobs or ameliorate income inequality, they have created an exquisite rise in asset prices of all flavours from art to real estate.
A change in policy suggests a change in prices. We have highlighted this repeatedly because it is worth repeating. An economy in which money has a price is very different from one that doesn’t.
:: Jonathan Dobbin is head of wealth and investment management NI at Barclays. He can be contacted on 028 9088 2925 or email jonathan.dobbin@ barclays. com
