Market Outlook Report – May 2019

Market Overview

​May 2019 

Mexican tariffs threat condemns stock markets to worst month of year

Stock markets suffered their worst month of the year in May as escalating trade tensions raised the prospect of a global economic slowdown, adding further downward pressure.

The concerns over the worsening relations between the United States and China had already soured investor sentiment, but the equity sell-off accelerated after President Trump threatened to impose tariffs on Mexico.

Fund managers, tasked with investing our savings and retirement funds, have cut their allocations to risky assets such as company shares and sought refuge by purchasing higher quantities of government debt.  This has driven the interest rate on the US government’s ten-year debt down to only 2.1 per cent, while in the UK the interest rate has dipped below 0.9 per cent.  Investors in German debt are effectively paying to protect their money with yields at -0.3 per cent.  Even Greek debt, recently a pariah in international markets, is changing hands at less than 3 per cent.  Together, this tells you that investors think that increased trade frictions will stymie global growth and with it the earnings potential of public companies.

Relevance/ Impact

German weakness weighs on eurozone

The eurozone economy remains in the doldrums after growth in the services sector failed to offset a slowdown in manufacturing, according to a closely watched survey (the IHS Markit’s flash composite purchasing managers’ index (PMI), which surveys businesses in the single currency bloc).

Relevance/ Impact

Dow sinks as recession fear has investors seeking safety

In the last week of May, the Dow Jones industrial average sank below 25,000 for the first time since early February, as a recession warning light flashed in the bond market and China escalated its trade war with the United States.

Relevance/ Impact

Savers and pension funds have moved billions out of the UK since the referendum

UK investors have moved £62 billion out of British-based funds and into European ones since the EU referendum in June 2016, compared with £2.5 billion in the 18 months before the vote.

The outpouring of money was highest after the general election when the government lost its majority in June 2017 and in January this year when Theresa May’s deal suffered a historically large defeat in parliament.

Relevance/ Impact

Is gold still a good investment?

The political and economic turmoil surrounding Brexit should have sent investors rushing for the safe haven of gold: the precious metal has traditionally been a reliable store of value.  Yet, although the gold price rose by $61 to $1,317 an ounce the day after the EU referendum in June 2016, and briefly hit $1,362 in July, it has been trading roughly between $1,200 and $1,300 ever since.


Absolute return funds are failing to deliver on their promises but investors are still paying a high price

Targeted absolute return funds, sold to more risk-averse small investors, are charging tens of millions of pounds each year in performance fees.  This is despite frequently failing to keep a promise that they will provide a return, even when share prices are falling.

Relevance/ Impact

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.