Many a slip between cup and lip

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O the month of May, the merry month of May, So frolic, so gay, and so green, so green, so green! To pinch the words of Thomas Decker’s opening lines, as equity markets regain their upward momentum after the mixed fortunes of April. Several events provided US equity markets in particular with which to concern themselves in April. Geopolitical risk again came to the fore, but a lack of impact on oil prices soothed nerves. Stock markets thrive on company earnings; thankfully, the Mag 7 delivered, well, 6 of the 7 so far anyway. We still wait for Nvidia later in May. Along with April’s Fed meeting and an ever-resilient dollar, all had the potential to test the rally from the start of the year. And, at times, did.

 Into the Fed meeting, the idea of when the Fed would cut had turned to the fear they may go for another hike at some point if the disinflation story continued to stall. By the end of the month, the Vix fear index was back to where it finished at the end of the first quarter. Powell delivered a relatively dovish tone last Wednesday and then, on Friday, a jobs report that was just right for bond and equity markets that the US economy was slowing just enough to support the view once again that a cut before the year-end was back on the cards.

For whatever reason, the sharp increase in interest rates has not had the negative impact on the global economy one would normally expect, at least so far. Possibly, if it had of done, this would have made the Fed’s job an easier one. Now, we look forward to the prospect of easier monetary policy, when not if, which should start to help support growth in the coming years. Why would you not want to hold equities in that scenario? The IMF and OECD remain optimistic for growth for this year and the next, although their track record is not all it’s cracked up to be when forecasting.

The real question is, can the disinflation process recommence in America without a material deterioration in its economy? I guess the stock market is telling you at present that it believes it can. The US election will muddy the waters for the Fed; one would assume that they would rather stay neutral during the period, hoping that the current economic status quo remains. We also know life is not always just like that.

The UK local elections reinforced the expectation that Labour will take control of parliament at some point this year. Despite this, the renewed interest in UK stocks continues. The FTSE 100 is up almost 5% in the past month.