The equity market rally continued in April, with the S&P 500 index ending the month above the highs of 2018. Lyft, the online ride hailing and sharing app, came to the market for the first time at the very end of March. It was the highest profile stock sale of the year so far (although Uber has since listed at the beginning of May) and the first of a number of well-known ‘unicorns’ to undergo an initial public offering (IPO). While we did not participate, early performance may serve as an indicator for broader sentiment (and pricing attitudes) towards future issues. Performance has thus far been poor, as analysts cited concerns over future growth.
US first-quarter GDP exceeded expectations, coming in at 3.2% (annualised) versus consensus of 2.3%, with strong contributions from net foreign trade, inventories and stronger consumption. Inflation data, however, was to the downside, with the quarterly core personal consumption expenditure (PCE) deflator index rising only 1.3%. These conflicting signals, along with ongoing decreases in unemployment and increasing wage growth, may put the Federal Reserve in a difficult position; however, the market continues to price in at least one US rate cut in 2019.
In Europe, headline manufacturing indicators picked up slightly, but manufacturing data in Germany was still weak. Concerns over European growth linger, although certain data suggests that the region is entering a period of stabilisation. With inflation persistently low, the European Central Bank, along with many other central banks, kept rates on hold.
In the UK, growth improved slightly, although other data was mixed and Brexit continued to weigh on sentiment. With the Brexit deadline extended yet again on 31 October 2019, the UK is no closer to an agreement on any kind of deal. Prime Minister Theresa May has been having talks with the Labour opposition leader Jeremy Corbyn, but these talks have yet to yield any meaningful breakthroughs. Despite the government’s hopes, it looks likely that the UK will have to participate in European elections at the end of May.
We ended the month at a modest discount of 2.2%, having averaged a discount of 1.2% over the month and a premium of 0.1% over the first quarter of 2019.
Despite the recent recovery, valuation metrics in a number of areas remain reasonable and, providing that growth stays on a positive path globally, 2019 may see better returns than the year just past. Nonetheless, the cycle is mature, the bull market in stocks is extended, and outlooks for global growth in 2019 are 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 April 2019, unless stated otherwise.