Market Outlook Report – April 2019

Market Overview

​April 2019 

​Trading floors across the world toast strong start to year
Markets have continued to push higher despite the lack of compelling economic data, with US indices reaching new all-time highs last week.

We find ourselves coming towards the end of April with markets having seen the strongest start to the year since 1987.  Of the 29 US, UK and European indices that we track on a daily basis, 26 are up by at least 10%, with the lowest return (Norway) up 6%.  The main S&P 500 Index in the US is up by almost 16%, while the FTSE 100 is up 12.28%.  Both the MSCI Asia and Emerging Market indices are up over 10%.  The major laggard globally is Japan, but the Topix Index is still up 6.5% so far this year.

Relevance/ Impact 

US bullish as economy roars ahead
America’s economy roared ahead in the first three months of the year, confounding even the most optimistic expectations about its strength.

First-quarter gross domestic product grew by 3.2 per cent annualised, the commerce department said, the strongest first quarter since 2015. The US economy grew by 2.9 per cent last year, including growth of 4.2 per cent in the second quarter, compared with 2017. It has not grown at 3 per cent or more in a full year since 2005, when it expanded by 3.3 per cent under President George W Bush.

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UK stocks are not feeling the love
Despite the recent global stock market recovery, the UK is relatively unloved.  The latest Bank of America Merrill Lynch study of fund managers found that 28 per cent of them had an allocation of UK stocks lower than would be expected considering the UK’s rank in a global investment index.

The stock market has underperformed since June 2016 because of the uncertainty over Brexit. Investors are being put off by gloomy growth forecasts, the continued uncertainty surrounding Brexit and the political turmoil in the UK.

Relevance/ Impact 

Germany’s export troubles drag down growth in eurozone
The eurozone economy has stagnated this month as a manufacturing slowdown in the region’s largest economy continued to weigh on growth.  Germany has cut its 2019 GDP forecast for the second time in three months, predicting growth of 0.5 per cent in the latest sign that Europe’s largest economy is grinding to a halt.

The government had already cut its forecast from 1.8 per cent to 1 per cent in January. Germany is now expected to underperform all 19 eurozone countries apart from Italy, which has cut its forecast to 0.2 per cent.

The news followed an earlier warning by Mario Draghi, president of the European Central Bank, that “pervasive uncertainty in the global economy” was weighing on the manufacturing sector.  The eurozone is expected to grow by 1.1 per cent this year, down from the bank’s previous prediction of 1.7 per cent last December.

Relevance/ Impact 

Liontrust Special Situations fund
Liontrust Special Situations invests in UK stocks, particularly high-quality companies with strong brands and intellectual property, a significant amount of recurring business, and strong barriers to competition.  The fund invests in a mixture of small, medium and large businesses that meet the strict criteria used by the managers. Its biggest holdings include the accountancy software firm Sage and Compass Group, which provides support services for the food and hospitality industries.

Relevance/Impact

IMF cuts global growth forecast to joint lowest level since crisis
The International Monetary Fund has cut its forecast for global economic growth this year to the equal weakest level since the financial crisis, amid concerns about trade tensions, high debt and the threat of a no-deal Brexit.

The IMF downgraded world growth for 2019 from 3.5 per cent to 3.3 per cent.  Last year, the global economy grew by 3.6 per cent and it is expected to return to that level in 2020.  Growth is expected to slow in countries accounting for 70 per cent of the global economy, it said.

In its latest World Economic Outlook, the IMF said that the biggest concerns about the global economy may have passed after the trade truce between China and the United States and signals from central banks, including the Bank of England, that the interest rate tightening cycle had been paused.

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This article is in the opinion of Reeves Independent financial advisers only and is not intended as advice and no investment decisions. The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at April 2019.