Capital Markets Update: April 2019

For professional advisers only. Not to be relied upon by retail investors.

Capital Markets Update


  • Brexit postponed?
  • Solid US earnings
  • Improving economic data
  • Investment sentiment improves


In a nutshell

The equity market rally accelerated in April, accompanied by a slight rise in bond yields. Equity markets were buoyed by better than expected US company results reported for the first three months of 2019, as well as largely positive economic data. The UK avoided a crash-out ‘no deal’ Brexit, with the European Union (EU) granting a six-month extension.

April’s news – Brexit postponed?

At the eleventh hour, EU leaders agreed to extend the date for the UK to leave the EU, meaning a ‘no deal’ Brexit was avoided in the short term. Prime Minister Theresa May said she would have preferred a shorter delay and that the Government’s priority remained trying to leave the EU as soon as possible. However, cross-party talks remained deadlocked. The Labour Party argued that the Government needed to budge on the ‘red lines’ in its proposed exit deal. As things stand, the UK must hold elections to the European Parliament in May and, if it fails to do so, will leave on 1 June with no deal. Uncertainty therefore remains high, and has been reflected in the continued volatility of sterling.

We remain cautiously optimistic that a soft Brexit outcome is still most likely, but recognise that uncertainty remains high and continue to monitor the situation closely.

Solid US earnings

Earnings reported by US companies thus far for Q1 2019 were marginally better than analysts expected, which was a great relief for investors. Over the past year analysts have been revising down their earnings forecasts for the first quarter due to concerns over rising economic headwinds. These headwinds include slowing global economic growth, slowing consumer demand and rising labour costs. In fact, the majority of companies reporting quarterly results beat analysts’ expectations for earnings and revenues, helping to push the S&P 500 to new highs.

Improving economic data

Financial data released in the US were largely positive in April. Hiring by US companies rebounded more than forecast in March and February’s figures were also revised upwards. Manufacturing conditions also appeared to have improved as the Institute for Supply Management (ISM) Manufacturing Index increased more than expected and durable goods orders bounced back sharply in March. The growth rate in wages remained robust but cooled slightly.

China, the world’s second largest economy, also reported encouraging economic news. GDP growth in the first quarter of 2019, industrial production, retail sales and trade data all surprised in a positive way. However, there were some causes for concern as factory data in April unexpectedly slowed. In addition, investors are fretting that the size of any further economic stimulus by the Chinese Government might disappoint.

We are encouraged by the improving economic picture but believe an element of caution is still warranted given the current environment of uncertainty.

Investor sentiment improves

Despite the market rally since the end of 2018, investor sentiment has remained on the cautious side. However, that sentiment showed signs of improvement in April. Data on the flow of institutional funds, US equity futures positioning and an investor survey by the Bank of America Merrill Lynch all pointed to a more constructive view by investors on equities.

Some market commentators have flagged whether equities are experiencing a ‘melt-up’, a phenomenon where equity markets move up sharply, driven purely by investors’ positive sentiment. Our belief is that investor positioning, while it has improved, still remains reasonably restrained compared to history. We continue to monitor markets for signal that suggest investor sentiment is overdone.


While investor sentiment continues to pick up, jitters remain over the global economic outlook. We believe that an element of caution is still warranted on equity markets at this juncture. With regards to bonds, we maintain a preference for credit over sovereigns.

The current market volatility we are witnessing should create a favourable environment for active fund management, where adopting a diversified investment approach should be rewarded over time. We continue to look to manage our portfolios through the inevitable market ups and downs to deliver a smoother investment journey for our clients.

Camilla Rogers, Octopus Investments
t: +44 (0)20 3142 4617


Important information:
For professional advisers only. Not to be relied upon by retail investors. The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: May 2019. CAM008269.