Global Outlook & Strategy

Like gardens in theNorthern hemisphere spring, markets have become focused on growth. This has been driven by the decline in worries around inflationary woes and the potential need for central banks to engineer a recession through aggressively tight monetary policy. There remain concerns on the geopolitical front and no doubt there may be a pullback in markets after two strong consecutive quarters. Our perspective is that any pullback in equity markets (absent a major geopolitical event) should be reasonably modest and may present an opportunity for our client’s portfolios. Conditions are such that the positive environment will likely continue for a while longer. As we have said for some time, we remain excited by the current environment following a difficult and volatile period for markets in 2022 and in parts of 2023 as the adjustment to a more realistic interest rate environment has taken place.

KEY POINTS

• Equity markets broadened out in performance across sectors and geographies as fears about an imminent recession dissipated, confidence in a soft-landing rose and company earnings started on a path to recovery.
• Market interest rate movements became less of a driving factor for equity and risky credit market returns as those markets focused on the better economic outlook and the decline in inflation from extremely elevated levels.
• The bond markets faced some headwinds from the market’s revised expectations for fewer interest rate cuts. This was more a real yield move and inflation expectations remain contained.
• Asset classes with attractive relative valuations and earnings/income prospects, such as credit and mid cap global equities have a further runway to perform.
• We remain alert to geopolitical developments as these might upset the positive environment. The rise in the gold price and oil prices have a component of risk premia for geopolitics.