Equity markets advanced this week on the hopes that trade deals would soon be announced and that the worst may now be behind us. While nothing official has been announced, the US are engaged with many nations and investors expect positive news flow over the coming weeks.
The US equity market has borne the brunt of the tariff sell-off, with investors questioning whether the premium valuation is now justified. Over recent days we have seen the US market lead equities higher, with the beaten-up technology sector one of the bright spots this week. Equities rallied on news from Trump; firstly that he did not intend to sack US Fed Chair Jerome Powell, and then confirmation of talks with China and that a de-escalation on the elevated tariffs was likely.
We are currently in the thick of earnings season and there were key updates from Tesla and Alphabet (Google), two of the “Mag 7” group. After disappointing earnings from Tesla, CEO Musk said he would be taking a step back from Trump’s cost-cutting team (DOGE) and focus more on the business. Alphabet posted very strong results last night and announced a $70bn buyback plan. While tariff news and uncertainty has the ability to impact future earnings, it’s clear that many companies are still performing well and delivering positive earnings growth.
Staying with the US, durable goods orders smashed expectations, rising 9.2% month-on-month for March. While the data is very positive, it is likely there was some front loading in orders prior to the tariff announcements.
There was mixed data from the UK as services PMI came in below expectations and below 50, which indicates a contraction. Services has been a bright spot in the economy, so it is a concern to see this deteriorate. The trend was witnessed across Europe with data from France, Germany, and the wider Eurozone showing services PMI below 50. There was more positive news for the UK with strong retail sales released this morning, rising 0.4% over March. The International Monetary Fund (IMF) downgraded its GDP expectations for 2025 from 1.6% to 1.1%, citing trade wars, borrowing costs, and energy prices as the drivers of the adjustment.
BlackRock CEO, Larry Fink, spoke positively about the UK this week, praising Labour’s pro-growth agenda and stating that UK equities were at a “too deep” discount with BlackRock said to be investing in the undervalued equity market. Capital inflows will be needed to help close the valuation gap and so it is pleasing to see BlackRock’s positive stance on the UK. With investors questioning the US market currently, the UK, along with Europe, could be beneficiaries of any reversal in positioning.
It was a mixed week for gold, which hit new all-time highs at the start of the week, rising above $3,500 an ounce. However, as investors adopted a more risk-on stance, gold suffered, falling over 3% from the highs. The US dollar, typically a safe-haven currency, has traded very differently over recent weeks. The currency has sold off along with equities and has now rallied this week given the more positive tariff rhetoric. Sterling went to 1.34 vs the US Dollar at the start of the week, before falling back. We also saw the Euro make three-year highs vs the US Dollar.
After a very tricky April, it has been pleasing to see some relative calm in markets, with equities continuing to move off recent lows. We expect asset markets to stay volatile as we head into May, but there is potential for good news flow, with both the UK and US central banks meeting as well as the prospect for trade deals to be announced. We continue to search for oversold parts of the market that offer attractive entry points.
Andy Triggs, Head of Investments
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