Technology moves fast; for consumers and stock market scrutinizers it can be difficult to keep up. Experience over the past twenty years has taught investors to maintain a close eye on industry developments, company news and sentiment...
This morning's update showed 4.0% growth in retail sales compared to June 2014, but fell short of expectations. Economists had been predicting a number 0.6% higher. However the domestic consumer is starting to spend again - driven by lower prices (store prices, including petrol, down for the twelfth consecutive month and 2.9% lower on those assessed a year ago), rather than wage growth. Consumer confidence and spending is set to improve further over the next year as the domestic job market warms up and employment insecurity abates. Clearly the Bank of England's Monetary Policy Committee (MPC) is aware of this, and is making noises about the prospect of raising interest rates 'sooner rather than later' (perhaps in early 2016) to counter the anticipated rise in economic activity and inflation (given the lack of slack, or capacity in the system, and the 'lagged' effect or delay for inflation to emerge in the official statistics).
Following on from last week's article, which highlighted investors' use of high beta stocks (to play an expected rebound in markets, which appear oversold or undervalued) or low beta stocks (to provide insulation against an anticipated fall in markets, which appear overbought or overvalued), the prospect of using other financial instruments to capture wider market moves prompts this blog.
Against the backdrop of higher volatility, and a roller coaster ride, in the UK equity market over the past three weeks, a number of newspapers and financial commentators have highlighted the merits of 'defensive' shares. These are typically companies who operate in non-cyclical industries, where demand for their product or services is typically stable and inelastic, like the electricity and water utilities, pharmaceuticals and tobacco. However, such businesses tend to be priced at a premium to the overall market, and appear rich especially compared to more economically sensitive stocks, because of their perceived resilience to a downturn. Certainly, if one believes that we are about to experience another recession in the near future, then paying up for such firms can make sense.
Datafeed and UK data supplied by NBTrader and Digital Look.
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