It’s been another good week for stock markets with the FTSE hitting its highest level since January and barring any late reversal into the weekend the market looks set to post a 7th successive week of gains. The rally seen since the March low has been quite remarkable in terms of both its size (+12%) and the absence of any real pullbacks.
Good week for global indices
It’s not just shares in London that have enjoyed a good run of late with bourses on the continent and US stocks also recovering well from their wobble earlier this year. Fundamentals remain broadly supportive with the BoE, ECB and Fed all seemingly set to continue to err on the side of caution as side as rate hikes are concerned.
The decision from the US to pull out of the Iranian Nuclear Deal has seen no tangible adverse reaction in indices despite representing a potential source of geopolitical risk, with the only notable moves seen in the price of crude oil, which has actually boosted oil majors such as BP (LON:BP), Exxon Mobil (NYSE:XOM) and Royal Dutch Shell (LON:RDSa).
Should the price of oil continue to rise further (Brent crude hits its highest level since 2014 this week) then there will be an increase in inflationary pressures and this could lead to central banks having to move more quickly to tighten policy, but even if this does occur it is probably at least a few months off at the earliest.
Sell-in-May?
Whilst the outlook appears far rosier than it was just a few months back, there are potential challenges ahead which could well sour risk appetite once more. From a global perspective the main one is trade and what implications the proposed tariffs from the US will have as well as any reciprocal arrangements. Furthermore, seasonality could play a factor with the old trading adage 'sell-in-May-and-go-away' now in effect. The historical returns on the FTSE over the past decade have actually not been too bad, but June is actually the worst single month of the year for UK stocks. For now the market remains firm and looks in good health but any signs of a reversal or the re-emergence of trade war talk could see investors look to take some money off the table after the decent run higher seen in recent months.