This week I am looking back at the past quarter in the markets. Global equity markets suffered a sharp dip towards the end of 2018, in large part due to escalating US-China trade friction and concerns that the Federal Reserve was raising US interest rates too aggressively in the face of a global economic slowdown. Investors have since come round to a more constructive view on these issues and markets have enjoyed a meaningful recovery so far this year.
US-China trade talks are ongoing and the outcome is still uncertain. However, progress has been sufficiently good for President Trump to delay further trade tariffs that were originally planned for 1 March. Instead, he is maintaining the existing tariffs whilst putting pressure on China to honour its commitments to purchase more US goods and make progress on resolving other concerns, such as those relating to intellectual property rights.
On the issue of US interest rates, the Federal Reserve has shifted towards a more “dovish” policy, which means policy makers are starting to favour more accommodating policy in order to stimulate economic growth. Citing international economic weakness, the Federal Reserve has put a stop to its repeated signaling of additional interest rate hikes, replacing this with a new mantra of data-driven patience.
Closer to home, Brexit uncertainty continues. At the time of writing, the EU has agreed to delay the UK’s departure. However, Westminster remains in a state of political deadlock and it is fair to say that a wide variety of outcomes remain possible.
For our part, we remain convinced that equities will deliver the best long term returns compared to the alternatives of cash and fixed return investments. Having said this, there are areas of the market that look conspicuously expensive. In contrast, there is perhaps no greater example of value in the equity space than the UK stock market.