The Multi-Asset Process

November 2017 market review

The FTSE 100 posted another couple of record highs early in the month around the 7560 level before dropping off for the rest of November.

The Autumn Budget was the key event over the month and amid some headline-grabbing measures on stamp duty, we felt it was a fairly thin set of policies that characterised a government without a strong mandate.

With obvious concerns about getting proposals through the House, anything radical was always unlikely from Chancellor Philip Hammond and there was nothing in the speech that encouraged me to consider any shift in tactical asset allocation.

What does jump out is a downgrade in the growth forecast from 2% to 1.5% for 2017, with GDP also cut to 1.4%, 1.3% and 1.5 for the next three years before rising to 1.6% in 2021-22. Rounding out the disappointment, productivity growth and business investment figures were also revised down.

We are currently in a rare period of synchronised global growth, with two thirds of the countries tracked by the Organisation for Economic Co-operation and Development (OECD) accelerating from 2016. The fact the UK is among the few decelerating economies perhaps indicates headwinds caused by Brexit and, like everyone, I am keen for that situation to be resolved as soon as possible.

Latest developments on this front have seen the UK apparently concede the need to pay more than £50bn to Brussels as part of its Brexit divorce but with ongoing confusion surrounding the Ireland situation, we head into another year with little more clarity than we had 18 months ago.

Meanwhile, beyond the usual tropes of Korea, Russia and whether or not he is welcome in the UK for an official visit, Trump watch for the month focused on his proposed corporate tax cuts. Trump and his allies claim this would boost growth and as levels of business tax in the US are so high relative to global peers, cuts would level the field and shift investment back to America.

Wherever you stand on this economically, it is hard to deny a few simple facts: the Federal Budget is large and rising, the economy is already growing – albeit fairly slowly – without tax cuts and economic inequality is already at all-time highs.

Much of the focus in recent weeks has been on steps towards policy ‘normalisation’ and we are finally moving to a world where markets will need to survive without the safety net provided by quantitative easing (QE). That said, no one is suggesting all the money will be stripped out overnight and policy remains accommodative – not quite emptying the ocean with a teaspoon but a very deliberate exit strategy.

Bears are increasingly talking about complacency and markets running out of steam but we continue to believe there could be plenty left in the tank. This comes down to a question of duration versus magnitude: heading into 2018, concerns are growing that we are nine years into a bull market and as the economic recovery has taken longer than the typical five or six years, we must be later in the cycle.

We would dismiss the idea that bull markets can simply die of old age and it is the magnitude of the growth that is important rather than the length of the run.

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Friday, December 8, 2017, 10:22 AM