Oh to be in England now that Aprils here
How quickly has the conclusion of the first quarter come about? It is one that has not panned out as many expected but is nothing unusual, as forecasts and outcomes the twain hardly ever meet. As the year began, investment managers were still optimistic for the year ahead and remained overweight in technology stocks. This was despite concerns about high deficits and government debt, potential policy initiatives from the incoming Trump administration, ongoing geopolitical risk, and questions surrounding what the Federal Reserve will do with monetary policy. Not to mention, valuations for US stocks were looking particularly stretched after a strong 2024. As the quarter ends, the love affair with US tech stocks, which was in full bloom at the start of the year, is now having relationship issues.
The announcement from the Chinese artificial intelligence startup DeepSeek began questioning investor confidence in the potential returns from investments made by the likes of Microsoft and Amazon into AI. BYD’s claim that they had developed a battery that could recharge in 5 minutes, rather than the 40 minutes it currently takes, added further concerns that China is leapfrogging the US in technological advancement. The Mag 7 stocks gave up all their early gains and now sit in correction territory.
The threat of stagflation was on many lips, as the US consumer was running out of savings. This led to fears of a slowdown in the US while inflation rates remained stubbornly above central banks’ 2% target. Despite the correction in US stocks, which has at least taken some of the froth out of valuations, many US blue chips still look pricy relative to history.
While stocks may have taken a knock in the US, Europe, which has long been a laggard, saw favour amongst investors in the first quarter, helped by the new German Government’s decision to throw money at the economy. Donald Trump’s ongoing tariff threats continued to hit sentiment into the quarter’s end. Having said all that, there seem to be little signs of panic in the US treasury market, and the Vix fear gauge is roughly at the level it started the year.
Ms Reeves continues to defend her budget: short-term pain for long-term gain. It’s not my fault, honest guv. Wednesday’s inflation report brought a little peace, and today, the final estimate for UK GDP in the 4th quarter was confirmed at 0.1%. Oh, to be in England, Now that April’s there, thank you Mr Browning.