Will Dickson

The final quarter of the year was another strong period for equity markets, which were catapulted higher on the election of Donald Trump to US President. The strong finish to the year, will leave equity markets up over 20%, in Sterling Terms. Conversely, fixed income has been weak, as yields have risen and interest rate cuts have been slower than anticipated. There are also lingering concerns over government debt levels and spending intentions. The election of Donald Trump and full control of Congress by the Republican Party was received very positively by markets, resulting a 3% bounce in equities. The expectation is for tax cuts and a roll back in regulation, seen as supportive for corporate earnings and shares. Uncertainty remains from the foreign trade policy, where an increase in tariffs is expected. An increase in tariffs is likely to lead to reciprocal measures from the target countries, in aggregate, weighing on global trade and increasing inflation. Domestically, much attention was given to the inaugural government budget. Tax increases were expected although there was significant speculation over where they would fall. In the end, an increase in employers national insurance took the bulk of the burden, with the headline rate increasing and the lower threshold reducing. Higher inflation is likely. Economic data continues to suggest a decelerating global economy, with weakening labour markets the key indicator for this. Unemployment rates edge higher in many developed markets, albeit from low levels. This has coincided with a weakening in forward looking PMI surveys. Development of these data will be closely watched may markets. Looking forwards, weakening growth and stubborn inflation could become a headwind for an equity market that is increasingly expensive. Trading on a 19.6x multiple, the equity market is now at its most expensive in recent history and, when compared to government bond yields, may pose a less attractive option to investors over coming quarters.

‍