When you think back about the performance of the US stock market over the past year, the words “turbulent”, “volatile” and “unpredictable” probably sum it up best.
And so it continues. This time last week the S&P 500 index had dropped 1.2% the previous day. It would jump almost 2% a day later, be back down 3% the day after that and finally, end the week with a 1.44% rally.
Those three words suit it well. It’s certainly felt like a tricky environment in which to be an investor and one in which you could lose your hat and then win a few bucks in quick succession.
And when you look back to the “glory days” of 2017-2018 it can feel very different. In the close to three years since Donald Trump became president in January 2017, the S&P 500 has risen 35.5%. That won’t surprise you; the US market has been on a bull run. And I think it’s fair to say that President Trump will be happy too. No doubt really, really happy. Very happy.
What might come as something of a surprise though - to him possibly, but especially to the rest of us - is that despite the turmoil we’ve seen of late, since last August the S&P has done little more (or you could say, little worse) than tread water; turning in a 1.7% gain.
So what’s been going on and why?
You might well remember the close of 2018, which was when many called the end of the market’s run as the leading indices plunged almost 20%. But it was a short-lived correction at most as the US Federal Reserve signalled that it would put an end to rising interest rates - and the markets regained their previous pace, near-enough reversing those losses by the end of April.
But of course, the continuing turbulence is the result of the ongoing political and economic uncertainty that is dominating global markets right now; none more so than the UK and the US.
Last week the US central bank cut interest rates by 0.25%; its first such move since 2008. Tomorrow we’ll get some insight into the thinking behind the decision, when the minutes of the rate decision-making meeting are published. That could all end up being history all too soon though, as attention quickly shifts to Jay Powell and the Fed’s current thinking when the Fed chair gives the headline speech at the Economic Policy Symposium at Jackson Hole, Wyoming on Friday.
With the prospect of recession raising its head - in the shape of weakening growth in China and Germany and the UK’s retail and property sectors raising alarm - all eyes will be on the world’s central banks for some guidance, and no doubt some assurance as well.
The big question looming over this weekend’s proceedings is whether another US rate cut is on the cards. If so, there’s even the possibility that we will see a market rally. It’s not impossible; when then-chair Ben Bernanke signalled a fresh round of stimulus in his opening remarks in 2010, he moved the markets.
The “Challenges for Monetary Policy” theme of this year’s symposium is a fitting one, but such is the political and economic uncertainty that Mr Powell’s words may not provide the salve that many investors so desperately want. Indeed, if the doubters, who expect him not to give any clear indication are proved right, he may move markets. But in the “wrong” direction, as markets, currently pricing in an additional 65 basis points worth of cuts this year, are left less than happy. In fact, not happy at all.
Five year performance
As at 19 Aug
Past performance is not a reliable indicator of future returns
Source: FE from 19.8.14 to 19.8.19. Total returns in local currency.
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