As we had announced previously, after the financial markets plummeted in December, equities rebounded promisingly at the beginning of the year. Buoyed by a fresh wave of optimism, the capital markets have continued their upswing for several weeks. Since the beginning of the year, the performance of the majority of stock market indices has been impressive. In this respect, since the start of the year, the performance, expressed in euros, of the S&P 500 has exceeded 11%, that of the Euro Stoxx 50 has been around 7% and that of the Nikkei is close to 6%.
We should not get our hopes up, because we run the risk of being disappointed, downside risks not having dissipated any further. We should therefore remain cautious before talking about a lasting recovery.
Although visibility has much improved regarding several issues that have kept markets on tenterhooks in recent months, we should not get carried away by the current market euphoria. As mentioned repeatedly in the most recent Investment Update, we should not get our hopes up, because we run the risk of being disappointed, downside risks not having dissipated any further. We should therefore remain cautious before talking about a lasting recovery.
Furthermore, against this backdrop, the worsening of several economic statistics, particularly those out of China, and the downward revision of growth forecasts by several institutions, such as the European Commission, are a chilling reminder that we should tread lightly. In recent weeks, central bankers have also somewhat curbed their willingness to further normalise their monetary policy.
In the United States, the Federal Reserve revised downwards its forecast, announced in November 2018, of three interest rate hikes and stated that reducing its balance sheet would no longer be done on autopilot. In the euro zone, the European Central Bank also no longer appears to be fully convinced that a rate hike is necessary by year’s end. This caution is also reflected at company level, with corporate leaders maintaining measured expectations in 2019.
Various political risks and fears of an economic downturn will probably continue to fuel market volatility. As uncertainty continues to loom, we remain cautious in the short term and are staying neutral on equities.
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