Private Investor's Diary Portfolio 

Sanguine, not second guessing

Sanguine, not second guessing

My optimism at the turn of the year has been rewarded. Another good month, with all the major equity markets bar Japan in positive territory. This nicely rounded off the first quarter of 2019, taking many indices within spitting distance of the levels achieved before the fourth-quarter correction. The driving force behind the recovery in equity markets was an about-turn from the US Federal Reserve. A few months back expectations were that 2019 would see further interest rate hikes before peaking sometime in 2020. Once the Federal Reserve had made it clear that further hikes were on hold, it did not take long for the markets to start to price in cuts. Inflation expectations have fallen dramatically, and some believe a recession is imminent. The yield curve inverted, meaning that the two-year US Treasury yielded more than the 10-year Treasury. In the past this has been a reasonable indicator of looming recession. Whether this will hold true in an era of extremely low nominal rates remains to be seen.

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