Market Overview & Outlook – Quarter 3 2019

Global markets have continued to perform, with the US S&P500 reapproaching a record high and ending the third quarter with its biggest year-to-date gain since 1997. Even the UK FTSE-100, despite the Brexit turmoil has notched up a gain of over 9% this year, partly with the benefit of sterling weakness.

The US has continued to drive global markets, with President Trump stimulating the US economy in readiness for the Presidential Election in November 2020. Periods of volatility, such as August when concerns in respect of the US-China trade war highlighted the risks to global growth, a consequence of Trump’s assertiveness and ‘Make America Great’ philosophy.

On the positive side, interest rates have been reduced twice in the US and the low interest rate climate looks set to continue. In addition, the quantitative easing (QE) economic stimulus programmes are being left in place, indeed the European Central Bank has recently announced another round of measures to boost the European economy.

Corporate earnings announcements have surprised to the upside in many cases, supported by high levels of employment in both the US and UK.

It is concerning, however, that more than a decade after the global financial crisis, interest rates remain at historic lows and indeed continue to be cut with fresh rounds of QE. This ‘race to the bottom’ for interest rates risks future economic growth and betrays the poor underlying health of the global economy. Central banks face a difficult task of how to normalise the global economy without facing political opposition, or risk potentially severe consequences from either inflation or deflation. Certainly, bond markets are giving off early warning signals and weak manufacturing data as the US-China trade tariffs hit demand have caused analysts to lower their growth forecasts.

We are alert to these risks, but for now favour the momentum of both equity and bond markets, which we expect to continue to perform over the year ahead.

Please note, our Market Overview & Outlook is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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