Markets March 2017 16 Mar 2017
Markets generally are continuing to rally. Below we look into the he key reasons for this.
US markets have been rallying for sometime in the hope that Donald Trump’s policies will relate he United States economy because he has promised to make cash avaliable forninfrastructure and to implement business friendly tax and investment policies.
US Interest rates
The Federal reserve has started to slowly Increase Interest Rates. Usually this might be expected to put the breaks on equity markets. However there is an argument that this time around the raising of interest rates is a sign that the US economy is getting back to normal after the 2008/9 crash. As investors become increasingly confident of the economies resilience this is creating a virtuous circle as more cash is being invested into markets.
15th March the Fed increased interest rates a further quarter of a percent as expexted. Markets had been expecting the Fed to say it was looking to increase rates again in the short term but the accompanying statement was more measured. As a result the expectations of another increase in the short term receded another nda this helped markets to rally.
Investors had feared a right wing party would win the Dutch elections and that this could contribute to further weakening the EU generally.
As a more liberal party won this problem has received for now. A disorderly collapse of the Euro would not be good for markets in the short term although in my view could lead to accelerated growth across Europe over the more medium term.
Emerging Market Growth
Emerging economies continue to grow well despite much pessimism around and indeed the fact that there is still a prevailing amount of pessimism is possibly helpful for markets.
The UK economy has faired far more resiliantly than most forecasters expected.Again this has helped investors confidence as they realise the underlying economy may well be in better shape than they expected.
FTSE 100 while the FTSE is at a recent high it made 6999 on 31st December 1999. Therefore it has not really gone very far in 16 years. of course if you add in income then the FTSE has performed well. It has of course had a rocky ride over that period.
The FTSE 350 dividend yield is still on average 3.5%. Much more than investors can get from a bank or from government bonds (10 year bonds yield 1.22%). This acts as an incentive to buy shares.
CFM March 16 2017