Market update - May 2018

The charities team shares our current views on the markets.


Record breaking US economic expansion
If the US economy continues to grow through the second quarter, the current expansion from trough to peak will equal and then surpass the second longest on record (106 months recorded between 1961 and 1969). Such figures naturally raise questions about the longevity of the cycle; and we are closely monitoring the "vital statistics" of the US economic expansion for any sign of slowdown. Economic data from the US remains positive, and both inflation and interest rate expectations have been relatively stable, which should offer some support to equity markets. UK economic data has been less encouraging, with a slowdown in activity and business optimism declining. This means interest rates in the UK are unlikely to rise in the near term.

Trade wars or clever strategy?
Talk of ‘trade wars’ has been the main surprise of 2018. Having cut taxes in 2017, the US president is now turning his attention to international trade. By increasing the pressure on China to open its markets he is fulfilling his pre-election promise to put ‘America First’. The US announced its plans to impose tariffs of up to 25% on $50bn of Chinese exports at the beginning of April. China responded almost immediately with 25% tariffs on $50 billion of US exports. In reply, President Trump has asked the US Trade Representative to consider whether a further $100 billion of Chinese products could be targeted with tariffs. However, both sides have said they do not want a trade war and the US administration's plan would seem to be to achieve concessions from China so that the president can claim that his robust approach to trade has been vindicated ahead of the mid-term elections in November.

Implications for portfolios
We are conscious that we are in the late stages of the cycle and that equity markets are not compelling value, particularly in an environment of rising US interest rates and bond yields. Our cyclical indicators still suggest equity markets offer opportunities, and we remain invested to benefit from the earnings growth. We cannot afford to be complacent and are therefore biased towards value stocks within equity markets and favour diversification in our portfolios across asset classes – including absolute return and property where appropriate. Bond markets remain vulnerable and we maintain our underweight position, preferring shorter durations.


The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

Portfolio Director