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Markets rise as investors eye rate cut

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Global markets have pulled back from recent trade war-induced lows as investors begin to speculate US interest rate cuts might be on the cards later this year.

Federal Reserve

The S&P 500, Dow Jones and NASDAQ rose significantly after Federal Reserve chair Jerome Powell said the central bank was closely following the ongoing US-China trade war amid fears that the tensions could send the world economy into recession.

Powell suggested the Fed is prepared to tackle the threat of an economic downturn, saying it would “act as appropriate to sustain the expansion”. This prompted a wave of optimism, especially in the US, with Asian, UK and European markets making more modest gains.

Markets have had to wrestle with mixed signals coming from the trade war stand-off and this week’s announcement from President Trump on tariffs on Mexico seemed to add yet more fuel to the fire. It seems investors are realising the extent to which these conflicts could slow down the global economy, not just the US, welcoming any sign of future help from central bankers.

Data released after Powell’s statement also raised expectations of a rate cut, as orders for US-made goods dropped in April, with shipments falling by the biggest margin in two years.

Attention now turns to investors’ interpretations of the results from today’s European Central Bank meeting, to see if the ECB are just as willing to step in.

Trade wars: tech in the balance

Some of the biggest firms currently caught in the tariff battle lie in the technology sector. Often with a foot in both camps, Apple being a prime example, tariffs and intellectual property barriers increase the cost and complexity of their global supply chains, tying them up in new regulations and taxes.

Unsurprisingly, Amazon, Alphabet and Apple bounced back on the news but investors will be looking for stability in the sector’s trans-national operations before they can relax fully.

With volatility set to continue in the space, investors need to ensure adequate diversification within technology exposure and across all sectors. Tech is a spectrum and is an area often best entered into through a fund, wherein the long-term credentials of new entrants and industry leaders are analysed by seasoned analyst teams.

A brief look at the top holdings in James Thomson’s Rathbone Global Opportunities Fund, part of the Fidelity Select 50, gives a clear indication of the manager’s belief in the future of tech and measured approach to the sector.

Despite share price pullbacks, the manager is happy to keep the portfolio exposed to the sector, making clear selectivity and diversification are key. China-based Tencent appears in the top holdings, along with Amazon, Adobe and Salesforce.

Thomson explains: “Tech is mission critical for some businesses and this perhaps is what has changed over the last decade. Being at the leading edge of new technology and staying relevant for the next wave of customers really is a top priority for every corporate CEO.”

More on the Select 50

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.