October can be a challenging month for investors. Many of the biggest market wobbles have occurred at this time of the year. And a year on from 2018’s fourth quarter market slump, this autumn a combination of growth fears, geo-political tensions and ineffective monetary policy are at the forefront of many investors’ minds.
This week Fidelity’s Tom Stevenson hosted his latest Investment Outlook, giving an overview of what investors need to be aware of over the next 12 months. Here are three key themes from this quarter’s edition.
1 - Central banks turn on the taps
We started this year expecting the Federal Reserve to raise rates, so far they have done the opposite, with two rate cuts already and the probability of a third one later this month. Other central banks have been cutting rates too, even in Australia which has not seen a recession for 28 years.
As the US bull-run, currently the longest in its history, starts maturing, the likelihood of US interest rates heading even lower has increased as a string of downbeat economic statistics has confirmed the global economy is slowing. Central banks are running out of road when it comes to stimulating the economy, with rates stuck in negative territory in some countries.
While this is good news for borrowers, it is bad news for savers who have already endured over ten years of record low rates for their savings. With no rises in sight in the immediate future, savers, especially those in retirement, continue to be forced to look at riskier investments, such as the stockmarket, to get a higher level of income.
2 - Trade war - who pays the price?
Aside from the on-going political debates in Westminster, financial markets have been firmly focused on the ongoing trade dispute between the US and China. Tariffs and uncertainty over when or whether a resolution can be found are starting to show up in the hard data.
The decline in manufacturing activity around the world spooked investors at the beginning of the current quarter. Most of China’s exports go to countries other than the US, making it more resilient than some had thought a year or so ago. While America may be better placed than many as it is a big self-contained economy. Hardest hit will be trading nations such as Germany and Japan for which exports are a key contributor to GDP.
3 - Politics - more important than ever
On both sides of the Atlantic, politics will be a key driver of market sentiment for the foreseeable future.
In the US, the big question is who will go up against Trump next year for the presidency? That is of course, if he can make it through any impeachment proceeding to next year’s election.
Perhaps the bigger concern for US investors is the growing likelihood of Elizabeth Warren standing as the Democratic candidate next year. Compared with the most likely other contender, Joe Biden, Warren’s policies are about as far left as America is likely to produce. Her plans for breaking up technology companies like Facebook, for example, and big spending plans are unlikely to be welcomed by the markets.
Of course, this side of the Atlantic, the politics is equally divisive. Even with a Brexit deal agreed today, it still needs the approval of both the UK and European parliaments. What a potential Jeremy Corbyn-led government might look like is also front of mind for investors. With a general election widely expected before the end of the year it is fair to say the UK electorate is fragmented, split in two directions at the same time - left/right and Leave/Remain, meaning political gridlock is likely to be around for some time to come.
Download the full report today
That’s just three of the many themes featured in the latest Investment Outlook report. You can download it here, as well as watch a recording of the live webcast, where Tom discusses his view on the main markets and asset classes as well as answer questions received from viewers.
Access the Investment Outlook
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. 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. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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.
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