Stock market review for Q2 (April, May and June) 2017

2017 has so far been an interesting year for markets characterised by global growth in Q1 (Jan, Feb, and March) followed by fairly neutral behaviour in more recent months. 
A key and possibly unanticipated trend has been strong growth in European markets against the backdrop of Brexit negotiations and major elections. 

Market volatility has been low but prepare for a change

Market volatility is low for various reasons:
1.    The economic environment is currently quite stable, which may come as a surprise when newspaper headlines herald either surging or collapsing business activity. However, the truth of the matter is that global growth and inflation has been very contained in recent years, in a narrow band when looked at from a historical basis.

2.    Technical changes to how assets move. A few years back there was an environment of ‘risk-on risk-off’ so most assets moved at the same time, say in response to US tapering or Chinese currency moves. This has been replaced with a more fragmented environment, so share prices of different companies move higher or lower as they react to new triggers. Technically this also leads to a situation where overall market volatility is lower.  

After a period when market volatility has been lower on a historical basis, investors should be prepared for higher levels of volatility going forward. Whether this is identified with much higher or much lower share prices is what strategists are trying to consider – a more volatile market doesn’t necessarily mean a market sell-off.

Investors have been moving out of the US and into Europe

The US economy continues to grow quite well, but investor optimism about a sizeable tax cutting package has diminished in recent months – reflecting the difficulty the Trump administration has in pushing major legislation through Congress.
Meanwhile, the European economy is recovering steadily, with lower unemployment supporting consumer spending and many companies benefiting from the upturn in global trade. The election of President Macron in France has also reassured overseas investors about Europe’s political situation. The key question for later on in 2017 and beyond is after investor capital has moved from the US to Europe, where will it move next? Whilst that may be difficult to anticipate it once again confirms the importance and strategic advantage to investors with a well-diversified portfolio that is able to adapt to evolving markets.  

Please contact Adam at Argents Wealth Management on 01603 666132 if you would like to review your own investment arrangements.