Unusually vigorous price movements
The global economy continued to deliver strong performance. As an example, GDP rose in the second quarter of the year by 4.1 percent in the US and 3.3 percent in Sweden. Although there are certain non-recurring explanations for the high growth, the figures are still strong. This picture is confirmed by corporate mid-year reports.
July was also a good month for the equity markets. Things were relatively quiet in the fixed income market but credit spreads shrank, another sign that companies are performing well. For a long time now, the securities markets appear to have been tolerant of political posturing that has created uncertainty – but the market seems to be taking the threat of a trade war seriously. This is probably a key explanation for the weak performance of the Asian equity markets, including the Chinese. The fund rose by 2.3 percent in July.
Lifco, which issued a weak report for the first quarter of the year, showed with its mid-year report that the company is back with high and profitable growth. The share price reaction was also very positive. Volvo also issued a similarly strong report with margins close to Scania levels, but the positive price reaction did not happen because the market now believes the quarter was the peak of this cycle. After investors had a bit more time to think, the Volvo share has nevertheless begun to rise along with those of other cyclical companies.
Shares in forestry companies have otherwise generally gone down, triggered by Stora’s weak report. The fund does not own Stora, but it does own Holmen, which does not report until August. The wildfires have probably also contributed to the negative trend, even though the value involved is relatively small in relation to total forest capital. The banks have delivered stable reports and, as yet, the new competitors have not put noticeable pressure on residential mortgage margins.
It is also notable that interim reports these days often result in extreme price movements. Companies like Facebook and Twitter, lauded for their high and non-cyclical growth, saw their shares drop by almost 20 percent when the reports were published. Once again, the market was reminded that high valuations must also be considered a risk.