In a bizarre twist, three escaped pigs strolled into their local Russian supermarket and browsed the alcohol aisle. The porky trio clearly enjoyed hogging the spotlight as they were videoed breaking into a bottle of cognac!
Equity markets over the last decade have been anything but boar-ing! After emerging from the depths of the global financial crisis in 2009, the last 10 years have seen a phenomenal period of growth resulting in a record bull market. Asset class returns in sterling and local currency are below; a market “melt-up” in December helped finish off a stellar year (and decade) for equities.
Table 1: GBP total returns
Table 2: Local CCY total returns
As we leave the 2010s, it’s been interesting to cast our gaze further back in order to put the last decade into context. In the chart below, we have taken the last 90 years of performance for the S&P 500. There are two remarkable points about the current period of expansion. First, at 10.8 years since the last 20% fall, we are in the longest continuous bull period on record. Second, at +349%, this has been the largest single expansion on record. But one statistic stands out: this cycle’s per annum growth rate (shown in brackets in the chart below) has been one of the lowest in the last 90 years which in part reflects the relatively low levels of economic growth experienced in the developed world. Fortunately for us, economic cycles do not die of old age.
December was by all accounts an eventful month with two points in particular having significant implications for UK based investors. The first was the result of the UK general election in which Boris Johnson won an overwhelming majority in Parliament to push through his Brexit agenda, and the second was the announcement of tentative agreement between the US and China which could see a significant de-escalation on the trade war front. We’ve discussed the UK election numerous times given its importance on the trajectory of sterling and the subsequent effect on our portfolios. As such, we’ll briefly touch on the trade developments.
As ever, the US President’s personal Twitter account has been the feed to watch; on New Year’s Eve, he tweeted that a phase-one US-China trade pact would be signed. The most recent iteration of the agreement contains provisions that China would buy more agricultural products from the US as well as make changes related to intellectual property and technology in return for the US cancelling some new tariffs and reducing rates for other duties. Though this still leaves a significant proportion of import duties being levied on Chinese goods by the US, there are signs that Mr Trump is keen to push ahead and begin on phase two of the talks.
While the UK election and a resolution to the US-China trade war are indeed both significant tailwinds for equities, the US drone strike in Iraq which killed a top Iranian military figure has created a two steps forward, one step back scenario. As we mentioned back in the summer, the free passage through the Strait of Hormuz and the Gulf of Oman are deeply important for global energy markets. Investors now wait with bated breath in anticipation of further escalation.
STAT OF THE WEEK: 289,000 – the number of high street jobs lost in the UK in the 2010s (Royal Society for the encouragement of Arts, Manufactures and Commerce).
Data correct as at: 6/1/2020