The first six months of 2019 have been extremely positive for investors and the best strategy has continued to be (as with the last decade) to buy equities as cheaply as possible. There were signs  of cash fleeing the markets following the losses of late 2018 but yet again the ‘market timers’, ‘active evangelists’, ‘pound–cost averagers’ and anyone relying on quarterly investment updates were caught with their pants down as shares returned double digits almost across the board. Investment markets are not emotional (even if they are driven by human behaviour) and completely unforgiving to investing mortals.

One of the markets that has seen the biggest outflows is our own domestic UK stockmarket with record net outflows. This despite the fact that UK shares are trading with a historic yield gap over UK Gilts not seen since World War 1. Much of what is driving this investor sentiment is likely to be uncertainty, which continued this quarter with a prime minister resigning and the least serious candidate, racing ahead to succeed her. All this chewing up the time until the next Brexit deadline that we were told not to waste by the EU. What happens in the UK may not be so relevant to investors anymore as the US continues to dominate the world by stockmarket size and economic influence.

Contrary to all of this positivity there has been a continued slowdown in global economic growth, a manufacturing decline and continued concern over the indebtedness of companies and households. In ordinary times investment markets could expected to react to this environment but there is a real risk at the moment of investors having become immune to bad news or just forgetful, as a decade is a long-time to have to remember back to the last crash. Some current investors won’t even have experienced a market crash ever and will be less psychologically ready for one when it happens. The feeling is that markets are reacting to positive messages from the Federal Reserve and to a lesser extent the European Central Bank about cutting interest rates to keep the party going. Whether this is sustainable beyond a decade remains to be seen but it certainly can’t continue for ever.

The continuing US trade talks with China are going to be important, particularly now that China looks to have solved some of its internal economic issues. Thank goodness we have a stable US leader involved in talks.