It has been a volatile few months in the market as widespread reports of a slowing global economy, trade wars and seemingly endless political shenanigans have hit investor confidence. Markets can and will flip between fear and greed on a sixpence and we have seen plenty of this in 2019. What takes longer to turn and can have more fundamental and long lasting effects is changes to sentiment at the individual company level – are businesses gearing up for expansion or battening-down the hatches for a storm? Are they investing in new factories and technologies or cutting costs? Essentially, how are the underlying businesses that make up our economy seeing things?

One group of companies that it is particularly interesting to keep a close eye on is recruitment companies, such as PageGroup and Hays. When corporates are in bullish mood they tend to hire more staff and, of course, vice versa. Recruiters are at the coalface of this process and can, therefore, be useful to follow as indicators of corporate confidence. The bad news here is that PageGroup this week released a profit warning. The management of Page stated that they are seeing “more challenging conditions” and that "looking ahead, the deterioration in trading conditions … across the majority of our regions is anticipated to continue”.  Page listed heightened Brexit related uncertainty, worsening macro-economic indicators in Continental Europe and the US, social unrest in Hong Kong and weaker confidence in Mainland China on the back of trade tariff uncertainty as the main reasons for slower hiring.  It is clear from this statement that it is not just investors that are nervous in current macro conditions – corporates are also worried, as seen in fewer new hires.

We would be surprised if the world does roll-over into a recession this year on the basis that the US is essentially at ‘full’ employment, inflation is running at reasonable levels and the Fed is in dovish mood. We, of course, may be wrong here but it would be a historic first for a recession to occur in such circumstances. In terms of how this influences our investment decisions, it is worth emphasising that we maintain a consistent approach to investment throughout the economic cycle. We always aim to invest in high quality businesses that we believe are capable of surviving through good times and bad. We believe that businesses with genuinely unique brands (such as AG Barr), intellectual property (Smith & Nephew) and assets (Shaftesbury) are best placed to do this. In the case of AG Barr and Smith & Nephew, both companies were founded in the 19th century and, so far, have proven resilient to far worse conditions than the present.  We remain happy shareholders in both companies.