In early Spring stock markets recovered from their extremely poor start to the year but just like the weather they have not been able to sustain the momentum. We are a year on from the FTSE 100 going over 7000 and since then it has fallen below 6000 in August, September and December 2015 as well as in January and February this year. Indeed, in early February it dipped to around 5500.
Many markets have behaved in a similar pattern as the level of global economic activity remains relatively low and most companies face the pressures of low or no earnings growth. Certain sectors are being badly hit with banks and oil companies cutting jobs and capital expenditure. The banks are struggling in a low interest rate environment and in America they are also facing increasing write downs on loans to oil and energy companies. In recent weeks the effect of China has subsided, as fears over its economy have lessened.
There are many events affecting markets at present; the oil price, the EU referendum, the US election, currency swings as well as the challenges facing companies in an ever increasing competitive world. Within the UK, the economy has slowed and therefore the outlook for interest rates remains the same, the next rise looks a long way off. Even in the US there has been a softening in the outlook for interest rate rises and this has led to an increase in the gold price.
On a more positive note, US inflation has started to re-emerge and at some point in the next year or so we could see the inflation targets in certain economic zones being met, although there are still deflationary forces which means the level of inflation is difficult to predict.
In the current environment having a diverse range of funds can help reduce volatility and whilst overall returns may be more subdued, it increases the potential for relatively stable returns.