Please find below our weekly Investment Snapshot for the week ending 4th May 2018.
A brief insight into the latest market dynamics and details of any changes occurring within our model portfolios.
US markets have experienced increased volatility this week, as investors reacted to policy comments from the Federal Reserve following their latest committee meeting on Wednesday. The Central Bank decided not to alter interest rates again just yet, due to increased confidence over their inflation outlook. The Fed also stated that they expect growth to continue at a moderate pace, with a continuation of impressive company earnings, while acknowledging that consumer spending has slowed in recent months. The statement made by the Fed seemed to take a less upbeat, and more indeterminate, view of the economy, and markets reacted in similar fashion. Stocks went from opening at a loss, to reaching gains in the middle of the day, to ending the session at a loss; which highlights the uncertainty within US markets at this time. The S&P 500 finally settled 0.7% lower, as did the Dow Jones Index, while the Nasdaq Composite ended the day down a lesser 0.4% – which was kept buoyant by stocks in Apple jumping 4.4% after news of record company earnings was unveiled. Even a retreat in the price of the dollar, which did perform impressively over April, ended up being short-lived as the currency quickly returned back to the high level it was at prior to the downturn. The unpredictability within US markets was amplified by the imminent trade talks between the US and China, which are expected to happen over the next week.
The FTSE 100 has now grown by 9.5% over the last 5 weeks, a staggering achievement for the UK index. Even more impressive is the fact that the it has maintained such a good performance despite it’s heavy weighting of multi-national companies, who should be suffering at this time due to the turmoil over potential trade tariffs. The performance has been supported by smaller, more domestic, companies within the UK – the UK Smaller Companies sector has grown 5.3% in the same amount of time the FTSE has grown. However, the main reason for the rally of the FTSE is from the positive performance of commodities e.g. oil. The Index has a large weighting of commodity-based companies, and the rises within the asset class have trickled through and contributed towards the overall growth.
Another factor for the rally of the FTSE is the drop in the strength of the pound. After being one of the best performers in the currency sector during 2018, consolidating against a weakening dollar, the pound has fallen dramatically after the release of weakened inflation data that suggests an economic slowdown. Suspicions were confirmed after new data showed economic growth slowed in April to 0.1%, a big difference from the forecasted 0.3%. The pound has now fallen 5.83% against the dollar since mid-April, and the devalued currency allows exports to become cheaper, which benefits the multi-national companies within the FTSE – therefore aiding the growth within the index.
Gary’s market comments in conjunction with our investment partners
Yesterday’s consumer credit figures will give the Bank of England another reason to hold off a rate rise in May. Net consumer credit rose just £0.3bn which is the lowest figure for over five years and well below expectations. The April Manufacturing PMI was also weaker than expected at 53.9 and may be the impact of a rise in sterling earlier in the year. The implied probability of a May rate hike by the Bank of England has fallen below 20% having been 95% less than a month ago.
The FTSE 100 closed on Friday at a two-month high as the Korean leaders meeting prompted investor optimism, this helped 7IM portfolios. Using the Balanced fund as an example, the team added 3% of the value of the fund to the FTSE 100 in November and a further 1% in February having remained underweight for much of 2017. This leaves their holdings nearer to their neutral strategic asset allocation weighting for the FTSE 100 than at any time in recent history.
Sources: LGT Vestra and 7IM