April carried on in much the same vein as the preceding quarter.
The FTSE 100 rose 0.4%, up 2.2% on the year whilst US stocks were hit hard, notably the NASDAQ, down 13.3%, -21.2% for the year and bonds took yet another beating.
On Wednesday, the US Federal Reserve raised the base level up 0.5% to 1.0%, precursing them to a number of further moves over the year to get them to 2.5%. The day after, Thursday 5th May, the Bank of England raised the base rate 25bps also to 1.0%, but tellingly 3 of the 9 members voted for a 50bps rise. Incidentally, the pound suffered its steepest fall since the onset of the Covid crisis yesterday after the Bank warned over a recession; year to date the pound is down 9% against the dollar. The Bank is predicting that growth will slow markedly to 3.75% this year before a GDP contraction of 0.25% in 2023.
This darkening economic outlook is being driven by the cost-of-living crisis, surging inflation and the growing risk that we are entering a wage-price spiral, which could sustain inflation over the longer term whilst the current labour market enjoys unprecedented pricing power and workers push harder for wage increases.
These macro-economic pressures are weighing heavily on global markets, especially on the more growth-focused indices. The FTSE 100 with its price taking, capital intensives industries (oil & gas, mining, utilities, tobacco etc), is weathering the storm well and has been the place to be, but in our favoured style, UK quality growth, there has been no hiding. We still believe that over the long term, we want to be holding businesses with high barriers to entry, strong free cash flow and the ability to set prices, rather than take them. For example, Halma, who over the past ten years have had their share price led by sustained, compounded, earnings growth yet are off 30% year to date. We see the current share price weakness of Halma, and indeed many quality growth names in our portfolios, as an attractive buying opportunity – see chart, right.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.