May Commentary

After a somewhat difficult winter period, when equity markets fell back, a return to more stable conditions has emerged. Reasons for this include strong company results for the first quarter which, particularly in the USA, have exceeded the market expectations. This, together with Trump’s US tax reforms, have been more than sufficient to outweigh the likelihood that US interest rates will continue to rise as the year progresses.

There has been a slight dip in confidence in the Eurozone while the UK’s first quarter preliminary GDP figure, showing growth of just 0.1%, was most disappointing. This is particularly so as in the view of the Office for National Statistics, this was not down to severe winter weather: rather, it reflected a general decline in underlying activity and confidence. While on the upside weak growth and falling inflation combined make an early rise in interest rates far less likely, a lack of growth, or indeed the emergence of recession, is absolutely not what the UK needs at this economically sensitive time. Fortunately, many UK equities derive a substantial proportion of their profit from overseas activities and many share prices have benefitted from the decline in Sterling since the GDP figures were announced.

Generally, we continue to favour overweight positions in equities as the mainstay of many portfolios, perhaps with a somewhat greater emphasis on markets outside the UK.