Global stock market gains are likely to continue over the summer months, despite short-term concerns over interest rates, and it has also historically been a slow season for equities predicts the CEO of one of the world’s largest independent financial advisory and asset management organizations.
Nigel Green of deVere Group is weighing in on the last day of May – a month in which many indexes hit record highs – and as investors look ahead to the summer.
“One of the primary drivers of the current bullish market sentiment is the expectation of sustained economic growth, despite this meaning that we expect global monetary policy to remain ‘higher-for-longer’ for the rest of the year,” he comments.
“Institutions like the International Monetary Fund (IMF) and Bloomberg have recently revised their global economic forecasts upwards, further fuelling investor confidence. This positive outlook is underpinned by strong economic indicators, particularly in the US.
“Key metrics such as consumer spending, job creation, and corporate earnings continue to show robust performance. This solid economic foundation fosters a sense of stability and resilience in the world’s largest economy, reassuring investors of its continued growth trajectory.”
The economic revival is not confined to the United States. China, the world’s second-largest economy, is showing signs of a rebound. Concurrently, Europe is beginning to display promising economic activity, adding to the buoyancy of the global economic landscape.
“This synchronized trajectory across major economies strengthens the overall positive sentiment in international markets – even though it probably means rates will remain elevated, causing short-term jitters.”
Should signs of economic deceleration emerge, central banks are likely to reduce interest rates to stimulate growth. Lower interest rates make borrowing cheaper, encouraging both consumer spending and business investment.
“This monetary easing would also likely have a positive impact on equity markets, as it boosts corporate profitability and makes stocks more attractive relative to fixed-income investments,” notes the deVere Group CEO.
Historically, the stock market has shown mixed performances during the summer months.
The adage ‘Sell in May and go away’ reflects the tendency for markets to experience lower trading volumes and increased volatility during this period.
However, there are many instances where markets have performed well during the summer, especially when economic fundamentals and policy environments were favourable.
While the energy sector often faces challenges during the summer, several other sectors tend to perform well.
Nigel Green says: “Increased spending during the summer vacation season benefits the consumer discretionary sector. Travel, leisure, and retail companies typically see higher demand driven by seasonal activities and tourism.
“The tech sector continues to thrive due to ongoing innovation and the increasing reliance on digital solutions. E-commerce and online services often experience heightened activity during the summer.
“Also, healthcare tends to be resilient regardless of the season.”
Contrary to the general perception, the energy sector often struggles during the summer months. Although there is typically an increase in gasoline demand due to summer travel, this is often offset by refinery maintenance shutdowns and fluctuations in oil prices.
Additionally, increased production during other times of the year can lead to oversupply issues that weigh on the sector’s performance during the summer.
“Despite likely higher for longer interest rates, the stock market gains have a solid foundation to persist through the summer, potentially defying historical trends and delivering positive returns for investors,” concludes the deVere CEO.
