The global market setback over the past quarter was merely the end of a period of unsustainably high returns, and the outlook remains positive.
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The 16-month-long rise in global markets has finally come to an end.
The first quarter saw the market retreat after an unprecedented period of approximately 16 months during which the market continually moved up month after month. This change in sentiment was caused by confirmation that the tightness in the US labour market has started to push up wages. As a result, there is concern that a potential increase in inflation might force the Fed to raise interest rates faster than anticipated.
The market has merely returned to normal, and the outlook remains positive.
This change in market sentiment means that the market has gone back to a more ‘normal’ situation. For the last year and a half, we’ve been in a ‘fairy tale’ scenario where the market was on a constantly rising trajectory, which was clearly unsustainable. There is no reason to panic about the slight setback that we’ve seen this past quarter. The outlook is looking quite positive.
We think that the US economy will support global growth.
Buoyed by the very positive situation in the US labour market, consumer confidence remains highly elevated. We haven’t yet seen the positive effects of the tax cuts that were announced a couple of months ago, so consumer spending in the US should be quite robust for the rest of this year. Business confidence is also still at reasonably high levels. Although we don’t think that the growth in business investment will remain at the same levels we saw last year, we believe investment will remain relatively steady and supportive of the economy. The US economy should therefore perform quite well for the rest of this year. Aside from the uncertainty caused by the recent imposition of trade tariffs and fear about a potential trade war with its major trading partners, exports from the US should do very well. This will be boosted to some extent by a weaker dollar.
These positive prospects for the US economy will be supportive of the synchronised global growth that we’ve seen, which will support European markets and emerging markets.
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