Market overview from Quilter Cheviot
By Alan McIntosh, Chief Investment Strategist
Last week saw solid gains for global equity markets with the MSCI All Country World Index rallying around 3.2%. Stocks managed to rise despite, or arguably in part because of, a fairly soft overall batch of economic data. Growing concerns for an economic slowdown cause bond yields to fall back lower, offering a reprieve from the rising-rate headwind that has hindered stock markets for much of the year. Whether this move in fixed interest markets persists is subject to some debate, and much will depend on the forthcoming Federal Reserve (Fed) policy meeting, where another 0.75% interest rate hike is expected.
Second-quarter earnings reports have overall been fairly solid thus far, demonstrating some resilience in profits as well as on the outlook. The latest leading economic indicators are painting a different picture though, with purchasing managers indices (PMIs) showing weakness in the US. The US flash services PMI was worse than the manufacturing equivalent, dipping to 47.0 against an expected 52.6 after a reading of 52.7 last time out. The release was the first time in two years this metric had dipped below the 50.0 line that denotes contraction and expansion. Employment data also disappointed with the US initial jobless claims last Thursday coming in at 251k – the highest level in nine months.
The data pushed bond yields lower and the US 10-year Treasury note end Friday at its lowest level in two months, at 2.75%. Falling yields have provided some support to growth stocks and last week growth shares outperformed value while small-cap outperformed large-cap.