Investment Clock insights

Buying the dip

We are taking advantage of recent market weakness to add to equity overweights in the multi asset funds we manage ahead of the first potential interest rate hike by the Federal Reserve in nine years.

Stock markets have dropped sharply with weakness triggered by a decline in the oil price to seven year lows and stress in the US credit market ahead of the first interest rate hike by the Federal Reserve in nine years. The UK equity market has been particularly hard hit given its high exposure to companies in the energy and natural resources sectors.

Our sentiment indicator is flagging a contrarian buy signal for the first time since the summer sell off. Investor sentiment is depressed with our indicator 1.5 standard deviations below average. Stock markets are volatile, individual investors are pessimistic and US company directors are also buying shares in their own companies, which is a positive sign.

We expect global growth to pick up in 2016, in part due to the stimulatory impact of the lower oil price, and we do not expect gradual interest rate rises to derail an upturn in the US economy. The recent dip in the market looks like a good opportunity to add to stocks.

Figure: Our Sentiment Indicator has signalled a buy signal

The value of your investment and the income from it is not guaranteed and can fall as well as rise. This article is for professional customers only. The views expressed are the author’s own and do not constitute investment advice.