Il first quarter on the markets it was surprising in many respects. The economic slowdown that had already affected Europe and Asia in the second half of last year extended to the United States, but at the same time there was a formidable rise in stock markets. How can this apparent contradiction be explained? Second Alessandro Fugnoli, Kairos strategist, there are two reasons: the technical rebound after "the very strong fall, largely unjustified, recorded in the fourth quarter of 2018" and the "strategy change by the Federal Reserve”, which “until October was oriented towards a restrictive policy”, but in the space of three months it veered towards a different line: if not exactly expansionary, in any case “strongly supporting the economy and the markets”.
But in addition to the one between the economic cycle and stock performance, another contradiction remains to be explained. “On the one hand there is the rise of the bond markets, which would indicate a concern for the slowdown of the economies and could even prefigure the risk of a recession - underlines Fugnoli in the last episode of the video column "Al quarto floor" - on the other the exuberance of the stock markets, which behave as if we were in a phase of brisk expansion”.
In reality – explains the analyst – if we break down the factors of this share price increase “we see that compared to a year ago the stock exchanges are slightly higher and profits are slightly lower, but at the same time 10-year interest rates, which are the benchmark against which the equity markets are compared, are lower than 30-40 cents. This means equity multiples can expand, leading to more significant gains than last year.
Meanwhile, the more supportive policy inaugurated by the Fed has also been imitated by the ECB, the Bank of Japan and the Chinese political and monetary authorities. “This should allow the equity and bond markets to hold up well in the next period – continues Fugnoli – also because outstanding liquidity is still abundant and the Fed's drain on resources will be halted much sooner than expected."
So what is there to look forward to for the next few months? “We should see markets proceeding at a decidedly slower pace than in the first quarter – concludes the Kairos strategist – However, however, the trend will be calm and moderately oriented to the upside: A certain amount of volatility is possible, but nothing dramatic. Major difficulties could emerge at the end of the year, when the markets will look to 2020 and realize the political uncertainty to come, especially in the United States”.
