It is quite incredible how much investor sentiment has changed over the past 4 months. At Christmas, equity markets had suffered a decline from their September highs, which had many market commentators suggesting that the end of this prolonged economic cycle and investor bull market must now surely be imminent. Fast forward four months and stock markets are up 10-15%, have thus recovered most of their Q4 2018 falls and already there is talk about the potential of an equity ‘melt-up’ as Goldilocks conditions appear to have returned.
After such a roller-coaster ride in market sentiment, it is worth taking a step back and asking what are realistic expectations for the coming months. Just as we strongly suggested that equity markets had assumed too pessimistic a view back in December, we now guide investors not to get carried away and extrapolate forward the strong year to date return picture. Many of our research providers and market commentators more widely note that the primary cause of last year’s stock market sell‑off – another episode of the ‘bond market riot’ – has fully reversed after central banks signalled that they would not allow bond yields get out of hand. As a result, the bond markets for the time being no longer pose an imminent threat to the stock market or the economy.
