December brought little seasonal cheer to equity investors, especially in America where, by close on Christmas Eve, the S&P 500 (an index of the share prices of the largest companies in the US) was down -14.82% since the beginning of the month. Had it remained at such depressed levels it would have recorded the worst performance of US equities since December 1931, the period of the Great Depression.
Santa may have failed to bring cheer to markets on Christmas Eve but he turned up on Boxing day, since when share prices staged a recovery to close last Friday 28th December with the S&P 500 down “only” 9.94% so far for the month. If it stays at this level until close tonight (New Year’s Eve) then that will still be the second worst December performance for US shares in the last 90 years. In short, it's been a rotten month for investors, mostly for the reasons I gave in my article of last Thursday, 27th December.
Those of you monitoring the value of your Courtiers Total Return multi-asset funds will have noticed they've dropped by significantly less than global markets (at close on Friday 28th December, returns so far for the month were -2.78% for Cautious, -3.69% for Balanced and -5.08% for Growth). This is due to us taking a cautious approach to our equity exposure and utilising options to mitigate the worst of the downside.
Fundamentals for markets are improving. The FTSE 100 Index PER (Price Earnings Ratio) has declined from 22.75 at the beginning of the year to 11.21 currently. Put another way, if you bought the FTSE 100 as at 1st January 2018, your estimated average earnings (net profits) yield at that time was 4.39%. If you bought today, your estimated earnings yield is 8.92%. To put this in a longer term perspective, the average PER for the FTSE 100 series over the last 30 years has been 17.22 (an average earnings yield of 5.8%). So FTSE 100 fundamentals are much better than average, which you can attribute to price declines in UK shares due to the prospect of a messy Brexit.
Better fundamentals will encourage us to rebuild our equity positions in January, whilst being ever mindful that the world if full of risks. I suspect, however, that 2019 will prove more profitable than 2018, especially as we are coming off a low base.
Whether you raise a glass later today to either celebrate the end of 2018 or welcome the dawn of 2019, I wish you all a very happy, healthy, peaceful and (hopefully) prosperous new year.
Gary Reynolds CFA ACII DipPFS IMC Chartered FCSI
Chief Investment Officer
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