A downbeat ending to an upbeat quarter
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A downbeat ending to an upbeat quarter

Stocks were muted on Friday, leading to a downbeat ending to what has been, undeniably, a blockbuster quarter of gains. As political uncertainty puts a (hopefully temporary) hold on investors’ optimism, the market is taking a chance to catch its breath and count its winnings.

The S&P 500 and Dow Jones Industrial Index have both seen strong gains

sp dow gph

SOURCE: Bloomberg

In the second quarter, investors will be looking to see whether political developments in the U.S. and Europe dampen an improving outlook for global growth. Last Wednesday, British Prime Minister Theresa May initiated article 50 of the treaty on European Union, irrevocably setting the Brexit process into motion.

Over the next two years, the world will watch as Ms. May’s desire for a positive trade deal is balanced against her unwillingness to relinquish control of immigration, and the European Union’s insistence that Britain shouldn’t get a better deal outside the Union than within it.

Meanwhile, in the U.S., President Donald Trump looks to have failed his first major test as leader of the free world. This test was the repeal of former President Barack Obama’s healthcare policies, colloquially referred to as ‘Obamacare’.

On the campaign trail, Mr. Trump made multiple claims that repealing Obamacare would be ‘easy’ and that he would put something ‘much better’ in place. His inability to reign in dissent from Republicans – who have long sought to replace the previous administration’s healthcare policy with one of their own – is being perceived as a significant failure.

This failure calls Trump’s ability to action other policies into question. Much of the ‘Trump rally’ that has captivated the market since November has been predicated on his promise to deregulate the financial sector and cut taxes. Some analysts are now questioning whether the market has overestimated his ability to deliver.

However, it is fair to say that this political uncertainty is nothing new: Brexit and the Trump administration were considered major upheavals last year but, at time of writing, neither one has dented the emerging positivity of the market, which has been fuelled by strong indicators of the health of the global economy coming fast and furious from all quarters over the last three months.

Disclosure

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice. 


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