The end of the cycle?


19 July 2018

Mark Whitehead in his latest podcast reflects on the current market cycle and the companies where he sees the most sustainable growth.

STS July update Play Play Video

What caught your eye this month?

  • Global equity markets were generally weak this month, with emerging markets and the more cyclical sectors such as industrials, materials and financials suffering the most.
  • Market commentators have suggested this weakness reflects investors’ concerns that we are at the peak of the stockmarket cycle, or that equities were fully valued at the start of 2018 and have simply needed to correct.
  • From our perspective, falling investor confidence and increasing volatility could present us with some interesting opportunities.

What currently interests you?

  • We recently reviewed our Industrials and Materials holdings and remain confident of our focus on companies where the growth is more structural than cyclical.
  • Expectations for the more cyclical companies such as steel firms, truck manufacturers, or even recruitment agencies tend to get too high at this point in the cycle – leaving a lot of scope for disappointment.
  • Instead, our focus has been on companies with exposure to areas like electrification, industrial automation and nutrition, which we believe will enjoy long-term sustainable growth. Holding companies like these should result in positive dividend outcomes for our clients.

What is the outlook for the next few months?

  • With market sentiment falling, there is likely to be intense scrutiny on upcoming half-year results. These should provide a valuable indication from management teams as to how operations have fared in 2018 so far, and what their expectations are for the rest of the year and beyond.
  • This in turn will influence both earnings expectations and the value investors are willing to put on them. We expect volatility to continue, but as always we aim to look through short-term market gyrations and focus on the longer-term opportunities to deliver attractive and sustainable growing dividends to our clients .