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JPMorgan: three key considerations for stock market investors in the run up to Christmas

Written by: Mike Bell
At this time of year it’s normal to spend more time worrying about what you’re going to get everyone for Christmas than the outlook for stock markets.

Amid all the festive distractions, it helps to narrow down your focus, so with that in mind here are three key things for stock market investors to watch between now and the end of the year:

First, keep a close eye on the Brexit negotiations. It goes without saying that the clock is ticking and if we don’t see tangible progress towards a transitional deal by the end of the year markets may start to price an increased probability of a “no deal” Brexit. If so, the pound could fall further causing companies which get most of their revenues from abroad to outperform those which are more domestically focused.

Likewise, if the market gets any reason to price a greater probability of a change in Prime Minister perhaps, that could also have a significant impact on the currency. Against a politically uncertain backdrop it probably makes sense not to have a very large exposure to the most domestically focused UK companies, which are generally found in the mid and small cap part of the market.

Unfortunately, most UK equity funds currently have a very big bet on these mid and small cap companies relative to the FTSE all share.

Second, watch the housing market data, particularly in London. The Royal Institute of Chartered Surveyors (RICS) survey tells us that London estate agents haven’t been this gloomy about the outlook since the financial crisis.

Were house prices to start falling that would be a concern for the economy and for UK focused equities. Caution on those house builders which are most exposed to the high-end of the London property market may therefore be advisable.

Finally, watch consumer confidence and the labour market. Typically, when the unemployment rate is falling and consumer confidence is rising, equity markets tend to perform well.

In the US and Europe, consumer confidence is at its highest in over 15 years and unemployment is falling fast. Unless consumer confidence falls sharply in these economies or there is a rise in joblessness, US and European equities should remain well supported.

In the UK, despite low unemployment, consumer confidence has been falling, which provides another reason as to why investors should consider broadening their equity exposure beyond the UK market.

Mike Bell is global market strategist at JPMorgan Asset Management

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