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You will have seen media coverage of share market movements since last Friday – pleasing to see hyperbole is alive and well!
It is important to put the very short-term moves in context rather than focus on the media headlines.
2018 is 38 days old. Over this short space of time the United States share market (as measured by the benchmark S&P 500 Index) increased from its starting level of 2,673 to a peak of 2,872.87 up 7.5%. Over the last 2 weeks, the market has given back these gains, with the S&P 500 Index currently trading at 2,695 – up less than 1% for the year.
It is not uncommon for markets to get ahead of themselves over short time frames and indeed small corrections are often necessary. Ultimately it is the fundamentals of the economy that will drive markets.
At present the fundamentals are positive. For the first time since 2007, the world is enjoying a rare period of synchronised global growth. The United States economy continues to be buoyed by the announcement of tax cuts and increased employment. In Europe, the reformed regional economies of Portugal and Spain are now contributing positively to Germany's strong export driven growth. Meanwhile we forecast that in China and Japan a combination of fiscal spending, through initiatives such as ‘One Belt One Road’, and monetary spending through Japan's quantitative easing programmes, will continue to underwrite global growth. New Zealand is also benefiting from many of the factors which are driving global growth. This is something of a ‘goldilocks’ scenario and we continue to expect the combination of low inflation and strong global growth to drive shares higher in 2018.
As always, if you have any questions please feel free to contact Mark Jones.