Andrew’s Views
Markets mostly held on to their gains in April, but very few reached new hights. Resilient data from both the US and the UK have made for some surprising results. The UK has left it’s recession earlier than expected and the US’s expected recession due from the fast and large interest rate raises seems to have been held off not only for the short term, but some are predicting that the ‘landing’ might never come. (The effect of interest rates, ie the economy grinding to a halt due to the effect of higher borrowing costs, is often described as a hard or soft landing. A hard landing is a long and deep recession, whereas a soft landing would look like the UK for the last 6 months, whilst in a technical recession the economy didn’t fall very far or for very long).
Good job data from the US and strong resilience against any sort of fall have kept the main stock markets high, even outside of the favoured technology sector. Most experts were predicting 5 or 6 interest rate cuts by the end of the year by the Federal Reserve, however, due to the markets doing well and inflation’s fall not coming quite as quickly as originally predicted, those same experts are now predicting 1 to 2 rate cuts by the end of the year. That would normally be bad new for the markets but the demand for shares is still high and is keeping the market moving.
Outside of the ‘Magnificent 7’ the valuation of US stocks is still fairly reasonable with some growth still expected form the US in general. Alternatively both the EU and the UK seem cheap by comparison. Inflation is falling in both areas, steadily reducing and therefore easing pressures and increasing the likelihood of rate falls this year both markets are holding up well. Long term I expect both of these sectors to perform well simply due to the fact that they are really well priced, however, I expect the US market with its access to more AI focused companies to have a much greater potential in the coming year.
Fixed interests have struggled recently with interest cuts now being forecast to be slower to fall than originally anticipated, however, April was a strong month for both Government and Corporate bonds. I expect that the Fixed Interest market will do well for the next couple of years as interest rates trend downwards, however, some of this uptick has already been priced in to the cost of these bonds and if rates don’t start to fall soon then some of the recent rise in expectation of the rate changed could be lost. So once again, we think the medium prospects for bonds are good, but they may be a little volatile in the short term.
Given the brighter economic outlook we expect that Eastern markets, including Japan and even India (a potentially huge performer over the very long term) as well as Emerging markets will do well over the coming months and years. The Emerging Economies (not Japan) have struggled since the Pandemic, but with the world getting back on track we expect those economies to gain momentum soon.
