Weekend Rebel Review – July 6th 2024

Isn’t democracy great!!!!! and other things

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.Well that’s the election over at last but really it’s just the start. 

The thing about democracy is that when you lose you accept it.  Labour has won a big majority but it masks a lot of things like would they have done so if Reform hadn’t formed or Starmer getting 10k votes less than last election but it’s history now, it is what it is, whoever you wanted to win. As an investor at least, you have to move on with what now is a bit more certainty in that Starmer is now PM.

There’s been little in the way of results this week so I thought I’d run through where the market is likely to go in my view.  I remember reading some analysis a few years back that in the history of the stock market, shares do roughly equally well under Tory and Labour governments. On that basis we probably enter a period where shares are still very under valued but we have a lot more certainty.  My portfolio and I know the portfolio of a few others too, hit an all time high on Friday – most probably wouldn’t have expected that after the election.  But whatever way you slice and dice it, less uncertainty is a good thing.

So what sectors am I looking at mostly?  Well it helps to think about where the new government will splash the cash that we haven’t got.  Everyone keeps saying that there’s a shortfall in their budget of about £18bn which means they have to cut spending or raise taxes.  There is a third option though that I’ve not heard many mention, and that ‘s Blair and Brown’s old off-balance sheet trick PFI – Private Finance Initiative.  Basically you get private co’s to stump up the cash for a project and then the government pays for it when completed in long term extortionate payments of interest. I have heard Starmer saying that he has been talking to lots of businesses  and this is where I think we are heading again.  It’s what left Liam Byrne to leave a note to the incoming Cameron government to say ‘sorry, there’s no money left’ at the Treasury.

Businesses where this could likely be used is construction and perhaps housebuilders, also suppliers to the NHS.  Starmer will no doubt blow a fortune on green energy.  Starmer says he’s going to build lots more houses and change planning s it is quicker and faster – sorry but builders will build hoses that maintain their margins and won’t do anything to create over supply in my opinion.  So while housebuilders and building suppliers may see better sentiment and the shares may rally, I don’t think just those words will help longer term, he needs to get rates down.

Interest rates are likely to get cut soon but we are never going back to the 1%-2% interest rates unless we have some disaster.  Energy prices are likely to rise in autumn again.  Starmer will have to appease unions and all of us of a certain age know that the unions will be pressuring Starmer for higher wages and better conditions, all which have costs that will get passed through.  I have noticed a lot that when new governments get in, the issues that hit the previous government often come back to bite the new government.  I expect inflation to take off again with energy price rises and shipping cost rises.  I think this makes it tough for a lot of retailers and so I’m avoiding them for now.  There’s always something or a few things to buck the market tho so a few stand outs will do well.

Engineering and manufacturing looks a good area as many businesses re-shore and automate, especially if they have an international customer base. So I’ll be looking to add to the likes of MPAC and RR.  I’ve bought a few MSI and GDWN too who are in the sector and have some rather special specific goodies about them.  Healthcare will likely do well no matter what Starmer says about private healthcare – the demand as we get older is just so huge and growing.

Banking shares will likely do well but Labour are never the friend of big money unless it’s being given to them.

One thing I do actually think may go down here is illegal migration.  No thanks to Starmer but n Europe, if the far right are taking over in France the illegals won’t get in there so fewer will come here imo.  This might leave Starmer with a few extra quid in his pocket and also to claim success. If they have more money, where will it go? I can’t answer that but it would be a positive.  To the negative, I think Starmer will continue driving for net zero and it will end up requiring and costing more imo.

As for the indexes, the FTSE made a 2 year+ high on Friday after the election and that scruffy ‘almost a bowl’ is looking to break out:

The Small Cap Index is looking very similar:

Fear Greed is still sat at neutral, not that the UK seems to take any positive from the US anymore, only negative – perhaps that will change with a new government.

Meanwhile over the last 6 weeks the Russell 2000 has started making a nice little bowl

All this and the S&P goes from strength to strength

All in all the markets look solid.  There’s further French elections ahead which will affect things but not the US imo.  With US elections going on there will be a more pressing need to watch what currencies and interest rates are doing imo. German Manufacturing Production in May was down 2.5% - dreadful – never realised they had Grexit too 😊

I expect it will remain a stock-pickers market, and good stocks will rise on good news-flow as they have done for the past year and more so I’ll stick to my knitting and keep hold of my current holdings unless something great shows up that’s better than what I hold.

Try to ignore the noise and buy fundamentally cheap, good, well performing stocks that most have let go unnoticed – that’s my plan, I hope it works.

Rebel.