US markets ended a tentatively positive week on the front foot, although the gains were not enough to reverse the damage done so far this year.
The latest Presidential pronouncement suggested that there could be some flexibility on tariffs ahead of what he has dubbed “Liberation Day” on 2 April while also confirming that talks would continue with China this week. This had the effect of erasing earlier losses on the main indices, but investors remain dubious, given the constantly changing narrative.
Indeed, in some ways, the comments simply validate the concerns that have weighed so heavily; the uncertainty has been widespread, with decisions being delayed on investment and hiring for companies, spending for consumers, and allocations for investors.
In the meantime, there remains a keen eye on the state of the nation, and the last full week of the quarter brings any number of opportunities to gauge the health of the economy.
Releases are due on a raft of measures ranging from PMI and consumer confidence to the latest GDP revision and the Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation. Over the next few weeks, first-quarter earnings will begin to filter through, where an increasing number of companies have been dialing back estimates and expectations in view of the overarching issues with which they have had to contend.
Despite the mildly positive week, the issues of the year to date have wrought havoc on investors’ allocation decisions, most notably resulting in something of a capitulation for the mega-cap technology shares, which had for the last two years been at the vanguard of strong investor gains.
In the year to date, the Dow Jones is down by 1.3% and the S&P 500 by 3.6%, while the tech barometer Nasdaq has seen a decline of 7.9%, leaving the index firmly in correction territory.
Meanwhile, Asian markets have also had to deal with the inability to plan ahead of the tariff threats while also looking to recognize some rather more positive signs emerging from the domestic economies of Japan and, in particular, China.
For the former, inflation remains a central theme as the central bank considers the underlying growth in wage and food costs, which could prompt further hikes in the months ahead, let alone any fallout from tariffs imposed abroad. In China, there has been a noticeable focus on measures to resuscitate what had been an ailing economy, including a loosening of business restrictions and a number of stimulus measures aimed at boosting growth.
The UK has a packed economic agenda this week, including the Spring Statement on Wednesday, which is unlikely to bring much cheer to investors, consumers, or businesses. The announcement comes at a time of flatlining growth domestically, inflation not yet fully under control, and the effects of the Budget measures taking effect next month, which has already been bemoaned by a broad spectrum of companies including, but not limited to, the retailers.
In addition, releases are also due to inflation, retail sales, and GDP, each of which has the potential to derail any hopes of an economic recovery. The dim outlook has weighed most heavily on the FTSE 250, which has seen a decline of 3% in the year to date.
On the other hand, the FTSE 100 has been a saving grace for the UK, given not only its effectiveness as a proxy global index but also its perceived defensive nature at a time of high alert elsewhere. Some strength in commodity prices overnight coupled with a more risk-on approach in early trade resulted in notable gains of between 2.5% and 4% for most of the miners.
On the other hand, the banks continued their steady and almost silent decline as the sector garnered the attention of global investors. Barclays, for example, has risen by 14% since the turn of the year and by 67% over the last 12 months, and for NatWest gains of 15% and 79% respectively come after years in the investment wilderness.
The premier index has now added 6.3% so far this year, which does not include the additional contribution to total return of a healthy average dividend yield across the FTSE 100 of 3.5%, which taken together have made it a compelling investment destination for many investors.
This has been achieved despite some strength in sterling due to a weakening dollar which would normally work against the majority of constituents whose earnings derive from overseas and the US in particular. it remains to be seen whether this momentum will drive the index back to the record levels which it has been hitting this year, although for the moment at least the outlook seems set fair.