In uncertain times, taking drastic action is rarely the solution

The oil price continues to be the main driver of share price direction

AS things stand, it's hard to write anything without mentioning Brexit. March 29 is only about six weeks away and with inevitable timing, falls just ahead of the financial year end on April 5.

Good sense points to doing year-end planning a little earlier than usual this year, although when markets shocks are expected they rarely materialise.

What is known is that markets often forecast elections and political events wrongly and the media puts too much emphasis on headline grabbing politics rather than economics with relation to global markets.

Such events do not have the impact that is widely predicted – we only have to look back to when President Trump was elected to see that the disaster forecast for the markets turned into an extension of the bull market.

At the end of last week, it was concern over the outlook for trade talks between the US and China that had a greater impact on equity markets and caused the sharp rebound we saw in January to falter. The ever-unpredictable Mr Trump ruled out a meeting with his Chinese counterpart before a deadline on March 1 to strike a deal.

In addition, we have recently seen weaker economic data from both China and the eurozone which also led to a stall in the rally that we have saw January, although the S&P 500 recorded its best January this year since 1987.

However, after such a positive start to the year, there are so many dark clouds massing on the horizon that a cautious approach seems prudent. Looking at some of the UK market sectors, both international and domestically orientated, it is hard to be overwhelmingly optimistic.

Take oils, for example, one of the most international sectors, where the oil price continues to be the main driver of share price direction, but where demand is coming under pressure, in particular with China slowing.

Technology, which has played a major role in recent years, suffered a shock in the last quarter of 2018, drawing attention to the risks to the high valuations of many of the mega-cap companies.

On a more domestic note, Christmas trading for the retailers was somewhat shaky, although many of the large names put on a brave face, but even the newer on-line companies are not immune from shocks.

Utilities are still subdued with the ever-present threat of a Labour government and food retailers are dealing with a sea-change in consumers' behaviour. A little more stability has been seen in sectors such as healthcare, but clearly there are no guarantees.

In the face of such uncertainty and volatility, the temptation for investors is to take drastic action, but this is rarely the solution. Yield remains an important and somewhat elusive factor for today's investor and interest rates now seem likely to remain low for a protracted period, as in Japan. Shocks cannot be forecast and in such a world and it is perhaps advisable to maintain a well-diversified (and somewhat inactive) portfolio to weather the storm.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.

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