CTA Strategies – June Updates
To summarise the first half of the year, it has been the effect of political events which have impacted the movements and patterns of the financial markets for than anything else. Firstly, we the unexpected events surrounding the Trump presidency evolved. Secondly, as the populist movement emerged in Europe we experienced the snap elections in the UK. Finally an election victory sealed by an independent candidate in France was the most recent of these events. It is evident that these separate situations supported a push through in equity markets over the same period. As a results we have seen reactionary movements in the trading patterns of our CTA strategies. You will find more detailed explanations on how we develop CTA strategy signals that are tailored to defined risk and return profiles.
Corporate Earnings and Commodity Prices
We should not ignore the fact that strong corporate earnings are also a contributing factor towards the trades generated by our CTA strategies. World economies appeared to have kept inflation under control, with bond markets generating positive returns for interest seeking CTA strategies. These continued periods of sustained economic growth were targets which were unfeasible only twelve months ago. Any spikes in interest rates were most likely caused by the steady recovery in commodity prices. The expectations in future growth lent a hand to current market returns. However, to maintain any type of follow through would require a stable political environment to not impede growth.
Market Influencers for CTA Strategies
To discuss the key influences driving the markets, we need to address the changes that evolved from political development. There has been a clear rise in the populist movement and this tends to emerge when a significant percentage of a developed nation look to change their economic position. This has emerged from the stagnating personal wealth of the majority. And is the blame for factors ranging from post-financial crisis monetary policies, to globalisation and more recently immigration policies. The past year has seen political events that appear to address the issues. Consequently, there has been a definite rally to the upside supporting the markets. Aided by an increasing flow in credit, economic data has surprised to the upside with confidence among consumers and investors.
Direction of Market Valuation
A prolonged period of sustained economic growth does have a downside. Investors have been facing a dilemma since the middle of 2016 relating to the price or cost of risk assets. They are no longer that cheap. Valuations need to grow at the same pace to justify the market rally. This is where the risk of a sudden drop-off becomes the most likely outcome. Therefore these valuations are requiring evidence of sustainable earnings growth otherwise a market correction is overdue. In our views the benefits of trading CTA strategies have not shifted away from positive returns. Instead, we should be maintaining liquid strategies which can be easily reversed or reduced to a neutral positioning.