Skip Header

Mid-year Outlook: all eyes on the Fed

Tom Stevenson

Tom Stevenson - Investment Director

Today we launch our mid-year Investment Outlook. Unusually, all the main asset class and geographical region recommendations are unchanged from the time of our spring report in April.


That reflects in part the sideways movement of markets over the last three months. After the V-shaped market slide and recovery in the last three months of 2018 and first quarter of 2019, the April to June period was apparently less interesting. Markets have moved sideways.

Actually, dive a bit deeper and there has been plenty going on. April was the final push of the New Year rally, May saw a correction as trade tensions intensified, June saw the bull market back on track as expectations grew of lower US interest rates ahead.

That heightened volatility sets the scene for a tricky period ahead for investors. Where markets go from here is dependent on how those trade talks develop and whether or not the Fed delivers on the hoped-for rate cuts.

The optimistic view of these two developments points to another leg up for markets. The gloomier reading could see high expectations disappointed and a market correction, perhaps even the end of the long economic and market cycle.

My Outlook reflects these competing cases, with a neutral stance on shares, bonds and commodities. I’m negative on commercial property, where valuations look to have gone too far as investors chase yield in a low-interest-rate world. Cash is my main overweight at the moment, not because it offers anything very exciting in yield terms but because having some dry powder in volatile markets always makes sense.

My position on the main geographical regions in the equity market is also unchanged. The US has continued to lead global markets higher and the positive case sees a bounce back in the economy as lower interest rates and easier trade tensions kick in after the summer. The negative case for Wall Street rests on historically-stretched valuations and the fact that all the good news is now priced in. I’m staying neutral on the US.

The situation in Asia-Pacific ex Japan also warrants some caution. China needs a resolution in the trade situation to justify its strong bounce back in the first quarter of 2019. It has considerable power to stimulate its economy and much of its economy is not affected by trade concerns, so there’s a strong case for sticking with the secular growth story here. India looks better placed, even if re-elected Prime Minister Narendra Modi has his work cut out to live up to his economic promises in 2014. The market is also rather expensive by emerging market standards.

The other three regions the Outlook report covers are all still in buy territory, not thanks to their great prospects but because shares in the UK, Europe and Japan are out of favour and so cheap. There’s plenty to worry about in all three, thanks to Brexit (UK), trade fears (Europe) and poor demographics (Japan) but there is a price for everything. All three are good contrarian opportunities.

This is the hardest part of the investment cycle in which to recommend a prudent course of action for investors. There’s no doubt that we are closer to the end of the cycle than the beginning. At some point there will be a recession and currently share prices do not really price that possibility in.

That said, picking the end of a market cycle is notoriously difficult. In the 1990s, Fed chairman Alan Greenspan was warning investors of ‘irrational exuberance’ as early as 1995. The market peak remained four years away at that point. It’s also worth remembering that the final push for markets can be extremely rewarding as investors who have missed out on the party scramble to save face and climb aboard. Things tend to end badly for these Johnny-come-lately investors but for everyone else they fuel an eleventh-hour surge in prices which it is painful to miss out on.

The quarterly Investment Outlook is not an ivory-tower exercise. We use it as the basis for actionable fund recommendations to help investors - we hope - towards better investment outcomes.

To find out which of our Select 50 funds, we are highlighting as the best ways to play the various asset class and geographical recommendations, download the full report at And look out in the same place for the latest webcast in which I discuss the Outlook with my colleague Ed Monk and take questions from investors. The webcast will be posted for catch-up viewing within the next day or so.

Important information

The value of investments can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. 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.