It is also pertinent that the US Federal Reserve (Fed) has publicly abandoned any suggestion of an official interest rate increase in 2019 – a total about-face from its stated position at the end of 2018. It is also likely to cease quantitative tightening – the non-replacement of bonds on its balance sheet as they mature. This remains a far cry from quantitative easing but nevertheless represents a significant change in demeanour.
The Fed has also reaffirmed its view that trend US real GDP growth will be in the range of 1.75%-1.8%. This is marginally more pessimistic than our trend forecast of 2%. Either way, it leaves the US stock market at a precariously high value relative to potential growth. The Dow Jones index first hit 26,000 in January 2018 and is below that level today. It has therefore spent more than a year going nowhere. Perhaps we are witnessing another portent of dodgy times ahead.
Yields on 10-year bonds have fallen in all major developed economies over the past six months. It is remarkable how swiftly the investment and economic climate can alter.