So that’s how it’s going to be. European stocks hated ECB president Mario Draghi’s performance last week. American stocks seemed to love it. Strong employment numbers in the US (non-farm November payrolls up 211,000 and unemployment at 5%) made everyone comfortable with the idea that Janet Yellen will begin ‘normalising’ US interest rates when the Federal Reserve meets next Tuesday and Wednesday.
It’s a green light to ‘price in’ higher US rates and a stronger US dollar. If you wanted to make things really easy, and you were betting on the US dollar being ‘stronger for longer’ in 2016, then the simplest strategy is to buy Apple Inc. See the chart below. While the Dow Jones Industrials climbed 2.12%, Apple climbed 3.32%.
In market driven by liquidity, following the money is the safest bet. Mind you, it’s a bet. And mind you again, it’s not safe. But in terms of market breadth, stocks like Apple are proxies. For what? Higher stock prices and a stronger dollar.
It’s not a complicated strategy. But it does require that you no longer worry too much about valuations, balance sheets, or future earnings. You’re just speculating on liquidity. That’s the kind of distorted market that’s created when central banks spend the better part of a decade suppressing interest rates.
What is the best investment strategy for UK investors in 2016? Is it to buy a low-cost, low-fee index tracking fund and forget the news cycle? Should you try and beat the market? Or should you be out altogether? Hold that thought.
On Wednesday, Nick and are going to host a roundtable with Charlie Morris, Tim Price, Dominic Frisby and a special guest. It’s the Capital and Conflict end-of-year/2016 forecast extravaganza. If you have a question you’d like to ask the roundtable, send it to [email protected] Keep in mind we can’t give personal advice. But general questions are welcome.
Category: Market updates