The Federal Reserve (Fed) Chair, Jerome Powell, this week attempted to calm markets when he said that US recession odds, whilst being higher, aren’t alarming. On the back of this, the Fed chose not to change their monetary policy – as did the Bank of England (BoE). US equity markets and bonds rose on the good news, despite some sensational headlines.
Some commentators argue that central banks need to act quicker in response to a slower economic outlook but, of course, the fear of tariffs is causing heightened inflation concerns.
This week, our market update is mainly about the US as this is where most of the pain has come from in the last month or so. Many are questioning whether this is a blip or whether there are fundamental changes underway. Certainly, there has been a huge rotation this month by investment managers, moving assets away from the US. However, there has been significant activity from executives who are buying up their own stocks cheaply.
There is no doubt that the tariff wars are hurting global growth with almost all countries having their GDP forecasts reduced.
Finally, today we will share a chart from Marlborough Investment Managers highlighting how the S&P 500 has fared in periods when the index has fallen into significant negative territory (maximum drawdowns) and its ultimate response. Interesting reading. Perhaps it will be different this time, but it’s difficult to ignore the world’s biggest economy and some of its outstanding companies.
On this week’s agenda
- Good news from the Fed
- Will the Fed be too late?
- US equity allocations plunge
- What is the outlook for US stocks?
- Global GDP forecasts revised downwards
- US executives begin buying more of their own stock
- Lessons from history
- Summary
Good news from the Fed
The calming words of Jerome Powell seemed to soothe market sentiment, for the time being anyway. It wasn’t just equities that fared well, the yields on bonds fell for the third day in a row. In times of stress, bond yields tend to rise.
We can’t extrapolate this positive response moving forward, as for now, there are lots of moving parts at play and market sentiment can turn very quickly.
Continues…
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