With the benefit of hindsight, it was a generous Christmas present. The chart here shows the performance of the MSCI World index, expressed in US dollars, a benchmark for all the shares listed around the world. It traces a pronounced V-shaped recovery from the widespread angst pervading markets in the fourth quarter of 2018 when it seemed that the Federal Reserve was intent on tightening policy in the face of a nascent economic slowdown. The precise bottom of the V was December 25. When people talk about efficient markets, this kind of chart is the perfect riposte. Markets overshoot in both directions. Catching the tops and bottoms is impossible, but with experience you can get a feel for when investors have become excessively pessimistic. That is certainly how it felt during the year-end holiday season, even before Mr Powell’s dovish pivot rekindled animal spirits in the New Year.
Source: Refinitiv as at 31.03.19, in USD terms with income reinvested.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Please be aware that past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity.
|Five year performance|
|(% as of 31st March)||2014-2015||2015-2016||2016-2017||2017-2018||2018-2019|
Government bonds: the ultimate safe haven
There were two ways to view the change of heart by the Federal Reserve during the first quarter of 2019. Investors could have seen the new dovish tilt by the US central bank as a positive for markets - lower borrowing costs are generally good news for both businesses and consumers - or they could have worried that the Fed knew something that the rest of us did not. So far stock market investors have adopted the first interpretation while bond investors (typically a more pessimistic bunch) have opted for the glass-half-empty version. It remains to be seen which group is right, but the slide in bond yields that has accompanied fixed income investors’ flight to safety is remarkable. It suggests that the Fed’s tightening programme is done and dusted, with the next move in interest rates lower, probably later this year. Who would have thought that six months ago?
Source: Refinitiv/Fathom Consulting, as at 28.03.19.
Please be aware that past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.
Another election? Really?
Writing anything about Brexit is fraught with danger, especially if there will be a gap between putting (electronic) pen to paper and the actual publication of those words. As I am starting to write this Outlook on 29 March (the day when Britain was due to leave the EU but didn’t) and will be launching it on 9 April, three days before the first of the EU’s two proposed departure dates, the risk of being overtaken by events is particularly high. However, I can’t resist including this interesting chart from Fathom Consulting. It shows the binary nature of the current Brexit shambles. Either things go according to one of the many possible plans still on the table at the time of writing, and the next election is held as scheduled in 2022, or the May Government hits the buffers and a third General Election in four years is seen as the only way out of the impasse. Oh, Mr Cameron, what did you start?
Source: Refinitiv, as at 28.03.19.