Reflecting on March: A fast start

March was the final month of a strong first quarter for global equity markets. We take a look at the factors that supported the performance and what, if anything, it means for the remainder of the year.

Reflecting on March

What happened?

Developed equity markets, as measured by the MSCI World Index rose 1.1% in March, a third consecutive month of gains. It marked the end of a strong first quarter for equity markets, with the MSCI World higher by 11.9% during the opening three months of the year, the strongest first quarter of performance for more than two decades and the fifth strongest since the index began.

Why?

During 2018, a tightening of monetary policy by the US Federal Reserve, particularly towards the back-end of the year when economic data were deteriorating, and the US / China trade dispute, weighed on global stock markets. This year, however, the Fed has responded to a weaker global economy by indicating that it does not expect to raise interest rates this year. It has also stated its intention to end the process of quantitative tightening in September. Markets are currently pricing in a greater than 50% chance of a Fed rate cut before the end of the year. Meanwhile, the tensions between China and the US have eased. The tariff ceasefire that was due to end 1st March has been extended and indications from the most recent round of talks is that, while a few issues are yet to be resolved, progress is being made towards a trade deal.

What to take away from it?

So what does this strong start mean for the remainder of the year? Well, nothing really. It is interesting to note that in its 49-year history, the MSCI World Index has produced positive price returns in the first quarter 32 times. Of those 32, the index has gained in the subsequent nine months 25 times, or 78% of the time, versus 59% when the index has fallen during the first quarter. However, as every good disclaimer will tell you ‘past performance is not a guide to future performance’, and we would caution against using history as a tool to call the market. In fact, we would caution against trying to call the market at all, especially over periods as short as nine months. Instead, our advice is for those invested in the equity market to take a long-term approach and to try to find companies that stand to benefit from exposure to structural growth opportunities, and those that operate high-quality businesses with competitive moats that should be able to perform well through market cycles.

For companies that we believe fit these criteria please speak to your Investment Manager.