Where Goldman Sachs goes, other investors would do well to follow. Last week, the bank declared it was time to take some of the profits from its holdings in high-tech companies and put the money elsewhere.
But where? For Goldman it has been particularly energy stocks and Japanese stocks, which have performed well so far this year. Oil and gas companies in the S&P 500 index rose 16 percent, while the high-tech component rose 11 percent.
This, by the way, hides a huge divergence in the performance of the so-called Magnificent Seven. The star has been Nvidia, the leading artificial intelligence developer, whose shares have almost doubled since the first week of January. Microsoft has also done well, up 15 percent, but Apple is down a bit and Tesla is down 30 percent.
From the UK perspective, the question is whether anyone who made money in the US with high technology should bring the recovery home. That the FTSE 100 spent much of Friday above 8,000 would seem to say yes, because two things are happening here.
One, which is clear, is an improvement not only of the energy companies, but also of the miners and the banks, all of which have a great weight in the Footsie.
Moving on: Where Goldman Sachs goes, other investors would do well to follow
The other, much less certain, is whether a broader reassessment of the UK as a place from which to run a business has begun. If so, then London-listed stocks should start closing the valuation gap with New York, and it’s about time.
For the brave, my colleague Jeff Prestridge writes on pages 52-54 about a series of 20 cheap UK stock recommendations, including JD Wetherspoon and Greggs.
There’s gold, which I wrote about last week and which has had an amazing run this year. The main buyers appear to have been the central banks of the large emerging economies, which tells us something quite pessimistic about their assessment of the West’s competence and determination to curb inflation.
For the moment, US inflation seems likely to remain around 3 percent, rather than the 2 percent target. The current weakness of the euro, and to some extent the pound, is based on the view that the Federal Reserve will be much more reluctant to cut interest rates than its counterparts on this side of the Atlantic.
There are other peculiarities. Why should UK investment trusts trade well below the value of their underlying holdings? There are several with discounts of more than 10 percent, a measure of how unfashionable they are. Reason says this is absurd: managers are actually detracting from the investments they own. But the reduction in discounts has been a long time coming, and some investors at least don’t seem to want to wait for the wind to change.
My own take on all this is that investors shouldn’t try to be too smart. Goldman Sachs must be right in suggesting that they should cash in on some of their gains in high-tech stocks. Prudent diversification would lead to that, because if any holding has gone up a lot, you will start to overweight the portfolio.
But I do think it should be about moving away from the top, rather than moving away from American high tech entirely. Remember, the US market as a whole accounts for more than 60 percent of global stocks. You have to be there.
Whether you have to be on bail is another question. It has been a miserable year for fixed income investments. In the last week of 2023, ten-year government bonds returned less than 3.5 percent. Last week they approached 4.25 percent, before falling to 4.1 percent.
Ten-year US Treasuries were at 3.8 percent and are now around 4.5 percent. Markets are reflecting the fact that governments around the world need to borrow huge amounts and fiscal responsibility seems to have disappeared.
Still, the past week has been interesting. We expected a shift from American big tech to value stocks on both sides of the Atlantic. That seems to be finally happening.