Market Commentary 2015: Quarter 3 November 2015

Market Commentary 2015: Quarter 3

Data released in the third quarter (Q3) showed that the UK economy had grown by 2.4% over the year to the end of June. Unemployment fell to 5.5% and productivity rose at its fastest rate since 2011. However, inflation remained close to zero and this fact, together with a more uncertain global backdrop, led the Bank of England to leave interest rates unchanged at 0.5%.

Greece remained a focus of uncertainty in Europe, with prime minister Alexis Tsipras resigning and calling a snap election during the quarter. His subsequent re-election will allow the Greek government to continue negotiating with international creditors.

The economic recovery in the broad euro zone is struggling for traction, with year-on-year growth coming in at 1.5%. The European Central Bank is still a long way from raising interest rates, and its programme of economic stimulus is likely to continue beyond the September 2016 target.

The US economy remained resilient in Q3, with the labour market strengthening and gross domestic product (GDP) growth settling just above the 2% annualised mark. However, the Federal Reserve is cautious about the international backdrop and, as a result, interest rates remained at historic lows.

Data from China now suggests that economic growth is more likely to come in at 5–6% this year than the government’s 7% prediction. Given this lower estimate, government policy is likely to remain supportive. Finally, Japan continues to struggle with low growth and inflation, with further economic stimulus likely in order to stave off deflation.


What should investors do in response to these developments?

Many investors change their portfolios in a bid to take advantage of the latest news. However, it’s very difficult to time these changes effectively, especially when market uncertainty rises.

In practice, shifting your portfolio in response to short-term events may lead to little more than increased trading costs.

In many cases there is not even a clear link between economic news and market performance. For example, the UK economy is performing relatively well, but the UK stock market lost ground during Q3.

This simple fact illustrates the importance of staying disciplined rather than reacting to any short-term developments.

Market commentary provided by Vanguard – Quarter 3 2015

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