Kuwait: June 8, 2017
MAY 2017: Fundamentals and markets steady, risks still small but rising in US
Low volatility has been the story in the financial markets so far this year equities in advanced economies in particular. Unprecedented events, such as Mr. Trump assuming office early in the year or the election in May of a relatively unknown in France Mr. Macron, have left the markets relatively unfazed. Many factors may account for the low volatility, including technical reasons, such as the heavier reliance on passive-based investments (index funds, ETFs, etc.). Fundamentals, however, have also played a major role. We noted last month that the major economies, and thus their policy environments, had been remarkably stable for quite some time. I.e. steady growth worldwide, accompanied by gradual small upside surprises (primarily EU) leading to mild revisions upward, all accompanied by stable inflation that is in line with most central banks’ expectations. In other words: nothing conducive to any major economic or policy reassessment. That may be about to change.
Global equities for the month of May posted a gain of 1.89% as measured by the MSCI All Country World Index. In the United States, the S&P 500 and Dow Jones continued their winning streak closing in the green at 1.16% and 0.33%, respectively. The US markets overall were unaffected by the mixed economic reports throughout the month. However, at mid-month equity markets and the US Dollar suffered a temporary setback as political turmoil surrounding President Trump and Russia increased. The success of his first international trip to the Middle East and Europe helped markets recover towards the end of the month and took the spotlight away from the troubles engulfing the White House.