April and the second quarter of 2018 carried on exactly where March and Q1 had finished – volatile. The financial media made a big story out of the fact that markets had not opened the second quarter as poorly since 1929 – mostly missing to mention that the 2-3% April 2 decline was less than what markets staged during more than one day during March. And just as before, the recovery was just as swift the following day, and stock markets ended the week broadly where they had started.
The week’s erratic market movements appeared squarely the responsibility of Donald Trump, whose presidential threat and criticism of Amazon’s business model triggered another wave of selling in the US Tech sector, whereas his renewed trade war sabre-rattling towards China spooked markets globally. We cannot be entirely sure whether he now regrets having previously claimed bragging rights for the stock market highs in January.
What we do know is that there is a widespread suspicion that the US tariffs are intended as bargaining chips for trade negotiations with China, rather than the opening salvo for a lasting trade war. Why else would US stock markets have staged one of their largest one-day recovery rallies in recent history (on April 3), when members of the Trump administration suggested that markets were taking the threat of a trade war too serious.
For the moment, the fundamentally more important developments for near term market action are the latest macro-economic data releases on the state of the global economy and the outlook for the Q1 corporate results updates. The former brought little in terms of surprises versus expectations. The picture from around the world is that economic expansion has downshifted from rapid acceleration to ‘steady as she goes’, which we discuss and reflect in our third article this week.
Growth expectations have slowed slightly, but growth remains solidly positive and more important – synchronised across all major economies. It has been argued that stock market valuations are already pricing in a much more buoyant uptrend, but as we present in same article, we find that argument hard to follow, particularly since the stock market correction brought valuations back down to much less extended levels.
