Monthly Markets Memo - April 2019
by Dan Zalipski, CFA
Equities moved higher over the past month with the U.S. markets leading the charge. Emerging and developed international markets were not far behind. The bond markets also rallied marking the second month in a row that both equities and bonds have moved higher.
The Fed recently cemented its patient approach to rate increases. Investors pushed down yields as they added to bonds, betting that interest rate’s next move is lower rather than higher (bond prices move inversely to interest rates). Lower interest rates are also good for equities. That, in combination with the optimism around a potential trade deal with China helped lift the markets to a year-to-date high. Investor’s will continue to closely watch any new developments from The Federal Reserve’s monetary policy, the U.S.-China trade deal, and earnings.
This month I’d like to turn our attention overseas and check-in on some other areas of the world. First stop, the United Kingdom. Three years ago, the U.K. voted to leave the European Union in what has become known as the Brexit (British exit). This kicked off a multi-year process in which the U.K. and the E.U. looked to negotiate the terms of the separation. Details surrounding trade agreements, access to markets, and border policies must be worked out prior to the U.K.’s departure to ensure a smooth transition in what is considered a ‘soft exit’. By comparison, a hard exit would be one in which these important details are not resolved, resulting in a highly disruptive and potentially devastating impact on the U.K.’s economy.
As of now, the U.K. has yet to agree on an exit deal and runs the risk of leaving without one. Prime Minister Theresa May’s withdrawal agreement has been voted down three times by Parliament. The most recent exit deadline of March 29th was extended to October 31st by the E.U. to give the U.K. the opportunity to avert a ‘no-deal’ hard exit. This extension came with strings attached. The U.K. must hold European parliamentary elections next month or be forced out of the E.U. on June 1st without a deal.
Negotiations continue within the U.K. on how to best proceed. Prime Minister May, unable to get her own party to fall in line with her proposed exit strategy, has turned to the opposition party (The Labour Party) to get the process back on track. Some want to push for a public vote on any exit deal, including an option on the ballot to scrap the Brexit altogether. One thing seems certain, with a government as divided as this, compromise will be elusive, and any deals made will likely result in additional chaos and uncertainty. Any decisions made at this point are likely to have a sizeable impact on the region’s economy in both the near and longer-term time horizons. We find it prudent to reduce our exposure to the region until further clarity develops.
‘Darling you got to let me know, should I stay, or should I go?’ – The Clash
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Although general strategies and / or opinions are revealed, this post is not intended to, nor does it represent or reflect, transactions or activity specific to any one account. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All data and information is gathered from sources believed to be reliable and is not warranted to be correct, complete or accurate. Investments carry risk of loss including loss of principal. Past performance is never a guarantee of future results.