The resilience of the US economy, robust corporate profits, enthusiasm around artificial intelligence (AI), and the prospect of central banks reducing interest rates later in the year have pushed global markets higher.
New Zealand’s share market gained 3.3% in March, primarily on positive global investment sentiment and lower longer term interest rates.
The global economic and market environment remains constructive for both fixed income and share markets. Investment sentiment remains positive, inflation is anticipated to continue to decline over the year, central banks have paused raising rates, and their next move is likely to cut, the US economy remains resilient, and the risk of US recession has faded.
The outlook for global and domestic fixed income remains attractive. Fixed income offers an attractive yield with the potential for capital gains from further declines in interest rates. Longer term interest rates are forecast to decline over the next twelve months, given expectations that inflation will continue to ease and that central banks will commence interest rate reductions. In this environment, short dated fixed term securities, such as Term Deposits, are likely to underperform longer-dated securities.
The combination of stability in longer-term interest rate markets and central banks cutting policy rates should be positive for global share markets. Although US economic activity is expected to slow from its robust pace during 2023, the prospects for the US economy have improved in recent months. Against this backdrop, and in the absence of US recession, the outlook for global share markets is positive, with better value seen outside of the US.
Focusing on your long-term goals, while acknowledging that in the short-term returns may be volatile, should reward investors.
Full publication: Select Monthly_View___April_2024