Carrington Investment Approach

You may have woken this morning to the news reporting a market correction. This can sometimes cause unsettlement, so we felt that it would be useful at this time to provide our views and thoughts on the markets.

The start of 2016 was the last time we had a large pick up in equity market volatility. Since then, the markets have enjoyed a fantastic run in continuation of the bull market, with very few notable drawdowns. 2017 was particularly strong, with both the equity and credit markets delivering excellent returns.

The markets got off to a flying start in 2018. Whilst we would like to see the markets only going up, it is more normal and healthy to see corrections along the way and we are now witnessing a sizeable correction in the equity markets. To put it into perspective, however, the S&P 500 closed at 2649 last night. It started this year at 2683 and so has effectively only given up its gains for this year. This is a similar theme across some of the other markets we invest in and the returns made in 2017 therefore currently remain intact.

The selloff began due to a pick-up in the US 10-year Treasury yield, which was then followed by data that suggested the US has seen the highest level of wage growth since 2009, leading to fears of higher inflation. The investment community were pricing in a lower inflation outlook.

We should be reminded as to why inflation has returned. The world has struggled to regain growth since the Financial Crisis. However, there has been a steady improvement and since the middle of 2017, macroeconomic data from across the world has been extremely positive. We are finally in the midst of synchronised global growth, with most indicators suggesting a continuation of this outlook. Inflation should therefore not be surprising and is actually positive for equity markets in moderation.

We may see this pick-up volatility continue over the short term, however, we continue to be positive on the medium-term outlook and expect to be able to look back at this correction as a good buying opportunity.

If you have any queries about our market views, please do not hesitate to contact us.

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