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Wealth Management: Market Perspective – Unfinished business | Even lower for even longer?

Kevin Gardiner, Global Investment Strategist, Wealth Management

Groucho Marx said he would refuse to join a club that would have him as  member. Tactical investors take note - if your market view is greeted with open arms, you may not be joining a sufficiently exclusive club.

Specifically, if everyone is positive, who is left to drive prices higher? It may be too late to buy, so would-be contrarians have to sell instead. And at the turn of the year - and very unusually for this most unloved cycle - that's how it was starting to feel.

With good reason, to be fair. The two-year-old global slowdown seemed to be bottoming out; the risk of a bigger downturn was muted by the US-China trade deal; and political uncertainty had fallen. Yet monetary policy still seemed pinned to generosity overdrive.

Some of this might have been hard to predict, but the stock market's response was not. This left us agreeing with the newly positive consensus, but pondering whether it was indeed too late to take tactical advantage. Valuations were firmly - though not prohibitively - on the dear side.

Then along came a threat we'd all but forgotten: a possible pandemic. Markets often ignore humanitarian issues unless they affect business, but that is exactly what the illness - and the authorities' understandable response - is doing by scaring customers and suppliers and keeping them at home.

Until contagion and fatality rates are clearer, it is premature to suggest the threat has peaked. Nonetheless, we suspect it will do so in the weeks ahead, and see the sell-off restoring some near-term market headroom. In the meantime, our thoughts are with those affected.

Longer term, of course, positioning and mood are less important. And even after a strong year and decade, we still feel that stocks could deliver inflation-beating returns for investors able to take such a far-sighted view.

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