Market Commentary & CNBC Interview

Tavistock Wealth - 11th December 2019

The polls have become notoriously unreliable and nothing can be taken for granted ahead of Thursday’s general election.

UK Election 

Logic suggests that the Conservative Party will win a small majority, but 48 hours can be a very long time in politics. A hung parliament is the second most likely outcome. This could let Jeremy Corbyn slip into Number 10 as part of wider coalition with the SNP or perhaps the Liberal Democrats. A win for Boris Johnson will bring his Brexit plan closer to reality, lifting the doom, gloom and uncertainty from UK financial markets and prove to be the catalyst for a significant rally in sterling and UK equities.

Brexit

In theory, the end is near. On the basis that Boris Johnson wins a majority this week, the current draft Brexit Agreement should gain Parliamentary approval by the end of the month or in early January at the latest. This will lift the cloud of uncertainty that has been traumatising the UK for the past 3.5 years. Much legislative work needs to be drafted to ensure an orderly withdrawal from the EU at the end of 2020, but I expect that the UK will leave at the end of the transition period. Sterling and UK equities, especially mid-cap’s, are cheap and will rally significantly in 2020.

US-China Trade

It’s also a big week in the trade negotiations with the 15th of December deadline looming large on the horizon. This is the date when further tariffs are planned to go into effect, but I expect Trump will delay implementation. The negotiations have dragged on far too long and both sides stand to gain with a revised deal. Falling Chinese exports and discontent in the mid-west farm belt mean President Xi and President Trump need to get past the current snagging points ASAP. I expect that Phase-One of the deal will be completed in early 2020 and the balance negotiated prior to the US Presidential election in November. Phase-Two and a comprehensive final deal are vital for Trump’s re-election chances.

US Elections

Next year’s US Presidential election is very important for the global economy because of the pro-business/growth policies implemented by President Trump. The Democratic challengers have stated that they will change direction and raise taxes, curtailing one of the longest growth cycles for many generations. Another 4 years of Trumponomics will promote further economic expansion in the US, dragging the rest of the world along with it, especially once a trade agreement with China has been concluded and the ratification of USMCA. A Trump victory will underpin the equity market for a further 1-2 years, adding another 15-20% to the current bull market. A victory for the Democrats, especially Elizabeth Warren, would end the bull market abruptly, causing a 15-20% correction.

2020 Outlook

The outlook remains favourable for risk-assets such as equities and commodities and is neutral at best for bonds. A return to QE in the US and in Europe will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A marginally weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite markets are China, India, Russia, Mexico and Brazil. Gold remains cheap given the low level of interest rates and provides an effective hedge for any pull back in equities. Most government bond markets are grossly overvalued and offer little protection from either the return of inflation or a move to fiscal stimulus.

UK Election

Logic suggests that the Conservative Party will win a small majority, but 48 hours can be a very long time in politics. A hung parliament is the second most likely outcome. This could let Jeremy Corbyn slip into Number 10 as part of wider coalition with the SNP or perhaps the Liberal Democrats. A win for Boris Johnson will bring his Brexit plan closer to reality, lifting the doom, gloom and uncertainty from UK financial markets and prove to be the catalyst for a significant rally in sterling and UK equities.

Brexit

In theory, the end is near. On the basis that Boris Johnson wins a majority this week, the current draft Brexit Agreement should gain Parliamentary approval by the end of the month or in early January at the latest. This will lift the cloud of uncertainty that has been traumatising the UK for the past 3.5 years. Much legislative work needs to be drafted to ensure an orderly withdrawal from the EU at the end of 2020, but I expect that the UK will leave at the end of the transition period. Sterling and UK equities, especially mid-cap’s, are cheap and will rally significantly in 2020.

US-China Trade

It’s also a big week in the trade negotiations with the 15th of December deadline looming large on the horizon. This is the date when further tariffs are planned to go into effect, but I expect Trump will delay implementation. The negotiations have dragged on far too long and both sides stand to gain with a revised deal. Falling Chinese exports and discontent in the mid-west farm belt mean President Xi and President Trump need to get past the current snagging points ASAP. I expect that Phase-One of the deal will be completed in early 2020 and the balance negotiated prior to the US Presidential election in November. Phase-Two and a comprehensive final deal are vital for Trump’s re-election chances.

US Elections

Next year’s US Presidential election is very important for the global economy because of the pro-business/growth policies implemented by President Trump. The Democratic challengers have stated that they will change direction and raise taxes, curtailing one of the longest growth cycles for many generations. Another 4 years of Trumponomics will promote further economic expansion in the US, dragging the rest of the world along with it, especially once a trade agreement with China has been concluded and the ratification of USMCA. A Trump victory will underpin the equity market for a further 1-2 years, adding another 15-20% to the current bull market. A victory for the Democrats, especially Elizabeth Warren, would end the bull market abruptly, causing a 15-20% correction.

2020 Outlook

The outlook remains favourable for risk-assets such as equities and commodities and is neutral at best for bonds. A return to QE in the US and in Europe will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A marginally weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite markets are China, India, Russia, Mexico and Brazil. Gold remains cheap given the low level of interest rates and provides an effective hedge for any pull back in equities. Most government bond markets are grossly overvalued and offer little protection from either the return of inflation or a move to fiscal stimulus.

WATCH THE INTERVIEW ON CNBC BELOW:

This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited.

Want to know more about the Equity Markets?

Please contact us here:

1 + 4 =

Recent blogs
Tide may be about to turn

Tide may be about to turn

The following is an abbreviated version of John Leiper’s article ‘Tide may be about to turn’ for Investment Week magazine. Follow the link and read his views on page 23.

read more
Green Finance Summit 2021

Green Finance Summit 2021

Our Portfolio Manager for ESG, James Peel, was recently invited to provide his valuable insights into “Innovating Towards a Greener Future” as part of the London School of Economics Student’s Union Green Finance Society’s video conference: “Green Finance Summit 2021”.

read more
The Great Rotation

The Great Rotation

In Nothing Is More Powerful Than An Idea Whose Time Has Come, published in November, we introduced the idea of a Great Rotation across US equity markets. As shown in the chart below, this rotation is playing out in textbook fashion with value stocks outperforming growth by about 20% since the end of last year.

read more
The Unemployment Problem

The Unemployment Problem

The Fed’s dual mandate is price stability and maximum employment, but Jerome Powell has been unequivocal that it’s all about the latter. 

read more
Reflections

Reflections

This is the first blog since the holiday break. Whilst travel restrictions meant it wasn’t the holiday that had been planned, we adapted, and enjoyed the opportunity to spend some time together as a family and reflect on the last few months.

read more
Is the Bond Market Smarter than the Stock Market?

Is the Bond Market Smarter than the Stock Market?

Following on from last week’s blog, the dramatic rotation from growth to value remains in place for now. Early signs of quick snapback into the prior channel have not yet materialised and instead the ratio has consolidated and even shown signs of moving.

read more