As the greenest of inexperienced investors knows, “past performance investment is not an indicator of future outcomes”. Yet studying the past is not without merit.
After all, the price of a stock, fund, bond or index contains a vast amount of carefully (usually) assimilated information that is valid up to the time of the printing of the price. We learn a lot in analysing charts of share prices that provide the historical context, the news, and the momentum that we think is contained within it.
So reviewing what happened in the first quarter of this year is a good learning experience. We started badly with the doom-mongers in full cry – the Greek euro exit, the collapse of oil signalling a weak global economy, and Putin cast as the pantomime baddy.
Stocks may not look cheap on valuation terms but analysts cited the weak euro as a reason to be positive
We closed on Wednesday with some respectable economic data out of Europe, Britain and Japan. The mainland Chinese economy looks chronically weak but is chipper over its huge diplomatic victory over the United States regarding the new Asian Infrastructure Investment Bank.
The big move came in the European stock markets, which jumped a bumper 17 per cent year to date, led by a German rise of nearly 22 per cent. Europe recorded many positive economic surprises, with German unemployment now at a record low of 6.4 per cent and European unemployment at 11.4 per cent - not far from the magic single digit. The latest price index fell a very mild 0.3 per cent, hinting that deflation might ease.
Stocks may not look cheap on valuation terms but analysts cited the weak euro as a reason to be positive. If the European Central Bank seems intent on keeping liquidity loose through its bond buying programme, this cash will go straight into equities.
On the other hand, the S&P 500 index in New York had a torrid time, spending much of the quarter below water. It ended up a paltry 0.5 per cent but that took the US market to nine positive quarters in a row. The S&P is now lagging the pack after surging 50 per cent over the past three years.
There is no doubt that the balance of negative shock news versus positive surprises has been firmly in the negative. Concerns hinge around the fall in company earnings due to the strength of the US dollar and the fall in the oil price, hitting employment and consumption.