Talking to CNBC recently Bryn Mawr Trust’s Jeffrey Mills, who oversees $16 billion in assets said, “The stock market has already discounted a significant degree of the economic recovery. So, incrementally improving data here might not do much to lift prices. The risk-reward isn’t great here.”
He then went on to say, “The liquidity injection that the Fed is introducing to the market is actually being tapered off,” Mills went on to say. “Stocks are discounting an environment that is not necessarily reflective of not only economic fundamentals, but earnings fundamentals.”
DirectorsTalk spoke with Gervais Williams Head of Equities at Premier Miton Investors to discuss this and asked:
Looking at the FTSE 100, we’ve seen a steady rise since March, do you think we’ll continue to see an uptrend here or will there be a stall in momentum as Jeffrey Mills is indicating?
Stock markets have been somewhat directionless since the end of May. Whilst we continue to worry about a rise in corporate insolvencies and redundancies later this year, if anything we believe that the consumer demand recovery could surprise over the coming weeks. At present governments are continuing to encourage banks to extend their mortgage payment holidays, whilst central banks are continuing inject additional liquidity into their economies. So markets could continue to melt up further from here, at least in the short term.
And looking at the AIM All-Share index we see a similar uptrend. Which sectors do you think are driving this and are there any companies in particular that you consider are doing exceptionally well?
One of the features of this stock market recovery, has been how much of it has been driven by retail buying, rather than institutions that have typically remained more cautious with above average cash weightings. This trend has been evident within smallcaps such as the FTSE AIM All Share Index which has recovered much more markedly than the mainstream stock market indices in the UK. The AIM recovery has been led by those with winning business models taking additional market share – Boohoo.com, Fevertree, Dart Group and IQE – all up around 100% since the market bottomed in mid March.
Do you think these companies will continue to do well post covid-19?
COVID-19 hotspots will continue to flare up, which will stifle the recovery of these regions. However, the bigger trend is that much of the world is coming out of lockdown, hence consumer behaviour is likely to be favourable at present.
So when the risk-reward isn’t great and sentiment data isn’t really clear, what are the key areas for investors to keep in mind?
At present there is still room for big surprises. For example, if one of the medical companies announced that a disposable COVID virus test with a readout in minutes has been approved by the FDA, then it would suddenly make airline travel, and social engagement (including visits to nursing homes) viable again. Remember the surprise can work both ways of course, with blip in inflation that could push up bond yields, and undermine the currently elevated equity valuations.
Premier Miton Investors plc (LON:PMI) was formed in November 2019 from the merger of Premier Asset Management Group plc and Miton Group plc. The merger has brought together the capabilities, expertise and knowledge of two highly regarded companies to create a new organisation that is even better placed to deliver the right outcomes for its clients.
They aim to deliver durable returns over the long-term. Believing in looking forward, against a backdrop of constant change and development, they recognise that clients’ requirements will continue to evolve. It’s not enough to offer the investment solutions for today: we will continue to adapt in order to ensure we offer investment products that meet our clients’ changing needs.
