In a reversal of the first quarter, equity markets moved upwards to recover their losses from February and March this year. However, this has also caused equity market volatility to remain elevated. The reasons for the heightened volatility of markets remain similar to Q1- the continued threat of trade wars, a tech sector recovery (instead of a rout) and rising interest rates. Major equity indices ended the quarter higher with the exception of emerging markets which are still carrying a loss for 2018.
The economic backdrop is continuing to hold firm in developed markets, with more and more signs that we are entering a new and later phase of the market cycle.
Rising US interest rates, the potential ending of European quantitative easing (QE) and a robust global corporate earnings season indicate that the short term noise and aggressive corrections seen in the US and UK equity markets in Q1 appear to be temporary setbacks rather than capitulation and strong economic fundamentals remain despite the political backdrop and the expected stress of trade wars.
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