Stock market investors have had a lot a volatility to deal with already this year, which we explore here.  But there are still opportunities (which we consider in the latest TopFunds Guide, 28th edition, due out shortly).

P.S. do email back to order your copy of the latest TopFunds Guide

P.P.S. it appears that some of you have not been receiving the monthly update. We have discovered and solved a system problem in the last week, so all should now be well, fingers crossed

Before the start of the New Year, the US stock market hadn’t had a 4-day losing streak in 264 trading days. That was the longest streak in 87 years. This extraordinary complacency run is reflected in various sentiment extremes (some not exceeded since 1987), such as their stock market sitting within a hair’s breadth of being a statistical bubble (defined as two standard deviations above the long term trend for those interested in that detail).

Unfortunately, that’s just the tip of the iceberg.

For example, not one investment bank sees the US market falling, or even stalling, in 2015.  That’s real complacency.

The first few days of trading in US equities also gave pause for thought.

Going back to 1950, if the US stock market went up in the first five trading days of the year it went up for the whole year in more than 85% of cases. But if it went down, the market had a 50% likelihood of being down for the year.

In the first 5 trading days of 2015 the market was on a losing streak.  Nothing too scary yet.  But don’t be surprised if this sets the tone for the rest of the year (though those clever investment bankers will be very surprised).  The lesson of history is that the odds of your making money in US equities in 2015 are no better than 50/50. (Which, because it is so globally important, means that the same applies to most other world stock markets)

Moving on to oil, weren’t lower oil prices supposed to be a huge positive, underpinning the continuing optimistic consensus for 2015?  Not judging by the stock market volatility since the New Year.

The oil price fall results from a mix of increased supply and falling demand. The latter results from the world beginning to slow down, triggering concerns over deflation (on which read the latest TopFunds Guide).  Equity prices are not allowing for this concern.  But it is showing up in the rising dollar, and yields continuing to fall in the highest quality bonds – both are regarded as safe havens.  In fact if you buy some German government bonds there is a negative interest rate – you are paying them for the privilege of taking your money.  Bizarre and worrying.

And then yesterday the European central bank (ECB) announced its own version of quantitative easing (QE), as expected.  With Europe now officially suffering deflation, they had no choice.  It will be fascinating to see the impact of this.

So let’s not kid ourselves that there is any certainty here.  On the one hand cracks in the optimistic edifice have begun to appear in markets in recent months.  On the other hand there are pockets of opportunity, which we explore in the latest TopFunds Guide.  Just don’t over-commit.

P.S. do email back to order your copy of the latest TopFunds Guide

P.P.S. it appears that some of you have not been receiving the monthly update. We have discovered and solved a system problem in the last week, so all should now be well, fingers crossed