Equities reversed course and struggled in May as concerns over trade dominated. President Trump threatened to increase tariffs on $200bn of Chinese imports to 25%. Towards the end of the month, he turned his sights to Mexico, announcing a 5% tariff on all imports from that country with a threat of further rises. A marked shift in sentiment led to risk aversion and sharp declines in key indices, with the bellwether S&P500 Index down by 6.2% over the month. With trade tensions rising, fuelled by President Trump’s stand-off with China, concerns over global growth resurfaced. An important indicator for future growth expectations, the US yield curve, flattened further and markets moved to price in interest rate cuts from the Federal Reserve. In Europe, bund yields hit a new record low and financials, specifically banks, fell heavily.
In the UK, sterling depreciated by 3%, boosting returns for our overseas holdings, as Prime Minister Theresa May set a date to step down as leader and investors considered the prospect of a hard or ‘no deal’ Brexit. European parliamentary elections saw far-right eurosceptic parties make significant gains, and in the UK, the Brexit Party was the big winner while the Conservatives performed very poorly. There remains a tremendous amount of uncertainty surrounding the end game for Brexit, prompting an upwards revision to 2019 growth estimates from the Bank of England.
Despite the recovery in equities in the year to date, valuation metrics in a number of areas remain reasonable. Providing that growth stays on a positive path globally, 2019 should see better returns than the year just past. Nonetheless, the cycle is mature and the bull market in stocks is extended, with outlooks for global growth in 2019 starting to moderate. We expect that volatility will be heightened in the coming quarters, and we continue to invest in a range of diversified underlying stock selection strategies. We remain well placed to withstand any further short-term volatility in markets.
All information as at May 2019, unless stated otherwise.