We hope you enjoyed the break over the recent holiday period, and we all are looking forward to the emergence of warmer weather and some sunshine now that spring is underway. As we reflect on the last month, it’s evident that markets have once again charted new territories, driven by a confluence of factors shaping global economies. We would like to delve into the latest market developments and both our strategic and tactical outlook for navigating the evolving landscape.

POSITION AT CLOSE OF APRIL

The closing act of April witnessed equity markets reaching new highs, propelled there by investors’ interpretation of a more dovish stance by the Fed and upward analyst earnings revisions. Despite the expectation in Q4 last year that we would see up to seven rate cuts, this is no longer the case. The market has, however, digested the fact we may only see one or two and moved on.

YEAR TO DATE

Year-to-date, global equities have surged by a noteworthy 9.2%, showcasing the resilience of investor sentiment in developed markets, alongside a backdrop of economic recovery and accommodative monetary policy. While the inflation story in the US continues to fluctuate, markets are remarkably sanguine going forward about the potential for slower economic growth and inflation above target. This has led to increased speculation about the Federal Reserve’s response and even the potential for interest rate rises but this is still an outlying opinion and potential for rate rises is still low.

CURRENT STRENGTHS

The current strength in the markets was definitely precipitated by the incredible bull run driven by the technology behemoth. Just like in a marathon, these pace setters have now given way to a much broader-based rally, with sectors like industrials, materials, and consumer discretionary leading the charge. This improvement in breadth underscores the growing confidence in the sustainability of the economic rebound and the diversification benefits of a balanced portfolio approach.

Earnings season in the US is now well and truly underway, and anticipation is high regarding corporates hitting or even beating analyst’s expectations. Against a backdrop of robust economic indicators, and despite the Q1 GDP numbers missing expectation, forward forecasts and GDP growth projections continue to be optimistic. This sets the stage for corporate America to deliver another round of strong results.

CURRENT CAUTIONS & CONCERNS

Amidst the euphoria of current market highs, cautionary notes abound. Inflationary pressures continue to simmer, with recent data releases indicating persistent upward trends across various segments of the economy. While headline inflation has been on a continued downward slide as pricing for cyclical and discretionary goods continues to decline. Core Inflation remains stubbornly high and worryingly sticky. This has reignited speculation regarding the trajectory of monetary policy, with investors closely monitoring central bank communications for clues regarding future policy actions.

CURRENT CAUTIONS & CONCERNS CONTINUED

Geopolitical tensions remain another source of uncertainty, with conflicts in Eastern Europe and the Middle East causing consternation amongst many in the political establishment and a groundswell of public opinion on both sides. The markets have largely shrugged off these concerns so far but their potential to disrupt market sentiment should there be an escalation of hostilities cannot be underestimated. This warrants a more cautious approach to the construction and management of portfolios. The recent passing of the bill by the US Senate providing aid for Ukraine and the increasing tensions between Israel and Iran have brought into clear focus that these conflicts are far from resolved.

In terms of regional dynamics, the U.S. economy continues to outpace its peers, with GDP growth forecasted to exceed 5% for the year. However, concerns linger regarding the sustainability of this growth trajectory amidst lingering inflationary pressures. and potential headwinds from fiscal policy tightening. In Europe, equity markets have witnessed a resurgence, buoyed by improving economic fundamentals. Similarly, Asian markets have displayed resilience, with China’s economy exhibiting signs of stabilization and Japan experiencing a resurgence in corporate earnings and a move by the Bank of Japan to move interest rates out of negative territory for the first time in decades.

LOOKING AHEAD

Looking ahead, we anticipate continued market volatility as investors navigate the interplay of economic data, corporate earnings, and geopolitical developments. While maintaining a vigilant stance, we remain cautiously optimistic about the prospects for global equities, underpinned by supportive monetary policies and improving economic fundamentals. We are, however, constantly mindful of the risk of a ‘Black Swan Event’ which refers to an extreme or rare occurrence that falls outside the realm of normal expectations. These events, while infrequent, can have significant and unpredictable impacts on markets. The real risks of experiencing such an event in the current environment of uncertainty, underscores the importance of resilience, preparedness, and disciplined investing in navigating the uncertainties of financial markets. By acknowledging the existence of these difficult to forecast risks, and taking proactive measures to manage them, we can better position investors’ portfolios to weather any market turbulence and achieve your long-term financial goals.

CONCLUSION

In conclusion, while the road ahead may be fraught with uncertainties, opportunities will present themselves for astute investors willing to embrace the volatility. As stewards of your capital, we remain committed to navigating these turbulent waters with prudence and foresight, ensuring the preservation and growth of your wealth over the long term.

Thank you for your continued trust and confidence.
Warm regards,

Susie Gray – Director