The week that was

Renewed pressure in the financial sector alongside some checks and balances within the technology sector, saw the first negative week for equities in June. We may have expected the recent rise in banking stocks to tail off, as the positive improvement to margins that higher interest rates inevitably bring, are offset against debt portfolio’s that look higher risk now consumers are feeling the squeeze through higher borrowing costs.

An unexpectedly hawkish Fed and an aggressive BOE has dented confidence that we are perhaps somewhere near the end of this tightening spree, and the question now is can the central banks keep this plan in place without causing further pain for consumers which will almost certainly lead to slower growth, if not recession in the coming months.

Global markets don’t tend to look back, and the ‘R’ word won’t necessarily be disastrous if short lived and managed carefully. We forget that the market cycle includes periods of contraction as a fundamental phase and it is our belief that investors should not be too concerned if invested over the medium to long term.

Where possible we encourage our clients to retain higher cash holdings during periods like this. When, outside of global political concerns, the next move for markets is dependant upon the decisions of relatively few central bankers, being a forced seller is one of the risks we can manage with some forethought.

So a pullback to equity prices generally is no surprise at this stage. Relatively small and missing any signs of panic, there could soon be a chance to extend exposure to perceived value stocks and sectors.

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