The Week Ahead: 11-15 August

Last week I wrote about private investors’ current appetite for idiosyncracy in stock picking. Analysing individual companies for their relative merits and value is what appeals to me most about direct equity investing and I am sure that feeling is shared by many users of this platform.

But it is hard to ignore broader economic noise when it is as loud as it has been this week. On both sides of the pond, politics is driving a narrative. Markets are currently behaving relatively resiliently but, without wishing to be too pessimistic, I fear the coming months may start to see the impact of decisions taken by those in the highest of offices.

Starting with the US, where a new round of tariffs came into effect on Thursday morning. We have filled these columns before with speculation about the possible impact of tariffs, but the truth is that it is almost impossible to know what is coming around the corner from Donald Trump. In addition to the tariffs imposed on many European and Asian countries this week, we’ve had the murky musings of a possible 100% charge on chips imported to the US, with a potential workaround for any company willing to showcase a commitment to investing in American manufacturing.

Those with more expertise on trade than me have this week talked about a new normal for international trade. One which favours far more localised buying and selling. The trouble is that for global corporations, this is not the normal on which they have built their businesses or their supply chains. While the likes of Apple and Microsoft have chief executives who are readily welcomed into the White House, that is not the case for all multinational companies in the US and I am wary that the impact of tariffs may start to impact profits.

The UK’s slightly worrying market outlook is less directly attributable to political decisions. But even the most staunch supporters of Rachel Reeves’ policies would find it hard to argue that her first year in office has been as pro-growth as she had set out.

On Thursday, the Bank of England voted to cut the interest rate to 4% in a vote which was significantly tighter than would have been expected even a month ago. Rapidly inflating food prices, alongside disappointing economic growth have once again raised the threat of dreaded ‘stagflation’. It now looks unlikely that the central bank will cut base rates again this year, which might make it harder for the FTSE to continue on its strong trajectory - especially once companies start taking the full brunt of national insurance hikes in the second half of the year.

Graham has explained the thinking behind the interest rate cut and the outlook for further cuts (or lack of them) going forward in this article,

Meanwhile, we’re continuing to see an exodus of stocks from the London markets with few listings ready to replace companies being acquired. On Thursday, five of the 27 companies to have made announcements covered by our Daily Report team were in the process of being acquired. I have spotted many of you pointing out that your portfolios have been benefiting from this string of takeovers, but that is only a short-term thing. Like me, there are many investors expressing concern for the long term state of markets in London. 

In times gone by, I would have completely agreed with this sentiment from Bouden54 - I have long thought that there are far greater opportunities in the US and UK investors would do well to broaden their horizons.

But now I genuinely fear for the London Stock Exchange if this is the attitude. Here in the UK, we should be encouraged to invest in domestic markets and the current policies around taxation and interest rates are doing nothing to help that.

I realise that this relatively negative article is not destined to bring the light and optimism that the market so desperately needs, but I do hope that more celebration of the individuals companies that we have on these shores will be able to bring about some positivity.

Next week there may be a bit more time for this sort of thing, as the rush of results season dies down. There are still a nice batch of results, AGMs and trading statements for us all to get our teeth into and hopefully a slightly quieter week from Trump tariff noise.

Have a lovely weekend.

Economic Calendar

Companies Reporting