For most people, the summer represents a time of year where everything moves down a gear. Co-workers may be on holiday, kids are off school and longer evenings encourage finishing work early to head home for a well-deserved barbecue in the sun.
However, for investors, the summer months represent the perfect time to get busy adding high quality stocks to their portfolios. That’s because company news flow is generally quite low, which allows more time to be spent seeking out the best possible stocks for the long term. And, with many investors ‘selling in May and not coming back until St Leger Day’ (in September), there is often a fairly gradual decline in the price level of the FTSE 100 during the summer months.
Certainly, this year that is the case, with the FTSE 100 now trading 400 points lower than it was at the end of May. Of course, the Greek debt crisis impacted heavily on investor sentiment and was a key reason why stock markets fell throughout June. However, a deal was reached for Greece to implement refreshed austerity measures and make repayments moving forward, but yet the FTSE 100 is still falling.
A key reason for this is the anticipated increase in interest rates in the US and UK. Clearly, investors are fixated on when the inevitable will occur and, as such, are somewhat nervy at the present time. However, the key takeaway from the numerous speeches made by Janet Yellen and Mark Carney is that they are not ditching a loose monetary policy in favour of a restrictive one anytime soon. In other words, even when rates are raised on both sides of the Atlantic, their increase will be very, very slow over years rather than months. As such, there is unlikely to be a major shock from interest rate rises and it could be the case that once the market realises that interest rates at 1% is not all that bad, investor sentiment may pick-up.
In this sense, rising interest rates could be similar to the withdrawal of the Federal Reserve’s monthly asset repurchase programme, where there was a lot of concern prior to its end and then the US economy and the S&P 500 continued their march upwards.
Meanwhile, Europe continues to face major challenges with regard to its anaemic level of growth. However, the full impact of QE has not yet been felt and, with the global economy continuing to improve, there is likely to be a positive knock-on effect on the single-currency region. Certainly, it may never grow as quickly as the US or UK, simply because its one-size-fits-all policy is arguably based on shaky economic principles, but it looks set to recover enough to post modest growth in the medium to long term.
And, while China is undergoing a transitional period as it shifts from a capital expenditure-led economy to being one driven by consumer spending, it continues to offer exceptional growth potential and, in the long run, remains a great place to invest.
As such, the present time seems to be a rather good one to invest in shares. The global financial crisis is now history, the world economy is continuing to improve, and the FTSE 100 still offers excellent value for money, with it being cheaper now than at the turn of the Millennium. Furthermore, the slow pace of summer provides you with the time you need to find the best quality stocks (at the best prices) to add to your portfolio.
