Back in Q4 of 2018, the convergence of several issues caused panic and a sell-off in markets: 1) fears that the Federal Reserve would continue to raise interest rates 2) an escalation in the trade war between the U.S. and China and 3) broader concerns around weak data and growth globally.
Fast forward to today, markets have had one of the strongest quarters in recent memory; U.S. equities are up over 13% and global equities up over 9%, what changed?
As mentioned in previous commentaries, the Fed has moved to a much more cautious stance in relation to additional interest rate cuts; Chairman Powell has held off on any additional cuts, scheduled the end of quantitative tightening for later this year and has reiterated a data dependent, patient approach to the economy. Similarly, the European Central Bank (ECB) has stated it has no immediate plans for interest rate hikes until at least next year.
U.S. – China relations have also improved, as we’ve seen a softening of rhetoric from President Trump, rolling back of tariffs, and much more optimism around future talks, although a long-term resolution is far from certain, particularly in light of competition between the two nations in areas such as technology.
On growth, we are seeing a slowdown in the U.S., Europe, and Emerging Market economies, however, labor markets in the U.S. and Europe remain strong, with unemployment continuing to drop. Specifically, in the U.K., we saw the unemployment rate fall to 3.9% in January, despite the overhang of Brexit weighing in on consumer confidence and business investment.
In China, the government has introduced a series of stimulative measures centered around tax cuts, infrastructure spending, and spurring credit growth domestically, all of which should be positive for future growth.