Mazars Wealth Management Quarterly Investment Outlook Q2 2018: The new "new normal"

Read our full MWM Quarterly Investment Outlook Q2 2018

The first quarter of 2018 saw a return of market volatility and a reversal of gains from the end of 2017. Despite a strong January, global equities finished the quarter down 2.1% in local currency terms, but 4.7% for UK investors as the Pound continue to strengthen particularly against the US Dollar. UK equities fell furthest (-6.9%) as Sterling strength and concerns about consumer confidence weighed on market sentiment, whilst European and US stocks fell by 5.4% and 4.3% respectively. Unusually in a downturn, emerging market stocks remained relatively resilient losing only 2.1% in Sterling terms.

Jerome Powell took charge of US monetary policy in January, and despite market volatility the US Federal Reserve continued on its path of interest rate rises albeit with some mixed messages about the strength of the US economy. Whilst the Bank of England held rates steady, two members of the MPC voted for a rate rise leading markets to expect tightening in the near future despite continuing Brexit uncertainty. Markets were spooked when Donald Trump’s talk of tariffs became a reality and the prospect of trade wars with China threatened global trade. Elsewhere technology stocks were heavily hit after questionable use of customer data raised the prospect of increased regulation for social media companies.

Despite market falls (which should be considered in the context of strong 2017 returns), economic indicators remain broadly positive if growing at a slower rate than at the end of 2017. Unemployment remains low in most developed economies and continues to fall in Europe, yet inflation and wage pressures remain muted, whilst corporate earnings continue to be buoyant. Although this economic cycle is somewhat long in the tooth, it is by no means the greatest expansionary period in recent history when considered either by duration or the cumulative magnitude of growth.

In January we took the opportunity to take some profit from our Equity holdings within portfolios, and held this amount in cash. We are now redeploying part of this cash into Gold. Although economic growth remains strong we are mindful of the changing interest rate environment and look to increase the diversity within our portfolios. We remain underweight in fixed income as our analysis of the risk and reward profile of bonds leads us to prefer cash and alternative assets.