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OPINION

Sleep on it

Sleep on it
April 20, 2018
Sleep on it

An important lesson to learn is that when making investment decisions its often better ‘to sleep on it’, as it were – in an age where we are constantly bombarded with conflicting information, it’s easy to act impulsively, and impulsive investors aren’t known for making the best decisions. And indeed, financial calm has been largely restored (for now at least). I probably found the break a little more relaxing than Mark Zuckerberg, whose two-day grilling by the US Congress helped to calm nerves around the tech sector (US tech stocks have rebounded by around 10 per cent this month). And markets appear more sanguine about the continuing prospect of President Trump’s tariffs, which prompted a rebuke this week from the IMF, which suggested any tit-for-tat trade disputes will bring about a slowing in global growth. 

For the time being, however, the goldilocks economic conditions we’re experiencing globally look set to continue. Even the UK, often cited as the current laggard among developed economies, is exhibiting a post-referendum resilience that is confounding the near-universal predictions of calamity by economists. Unemployment continues to trend downwards to a record low level, productivity and wage growth appear to be turning upwards, while a strengthening pound has taken some of the sting out of inflation.

Two sectors of the British economy that may welcome this news are retail and leisure, which have been stuck between squeezed household finances and rising costs, in part the result of the post-Brexit weakening of sterling making imports more expensive, and because of rising minimum wages. The tough choice many have had to make is either absorb the additional cost at the expense of profits, or pass on the higher costs to customers and risk losing trade – a severe and lengthy winter has only added to the perfect storm, prompting store and restaurant closures across the country.

The hope is that the sector may have passed its nadir. The FTSE All-Share general retailer hit a five-year low at the end of March, but like tech stocks has enjoyed a rebound in April, helped along by better weather and solid trading news from some leading names in the sector, including JD Sport and ABF’s Primark this week. Yet it’s still a sector where value traps lurk – as Algy Hall notes in this week’s small-cap stock screen. And, as the old saying goes, one swallow does not a summer make – so before calling a consumer recovery, it might be an idea to sleep on it.