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Source: Bloomberg, Aberdeen Standard Investments (as of 30 April 2019)
What a difference a year makes! At the end of April 2018, the S&P 500 Index was down 0.7% versus the start of the year. The Index was on its way to finishing the calendar year more than 6% in the red on a price-performance basis. However, 2019 is a different prospect – market performance has been the strongest since the 2008-09 Global Financial Crisis.
We have access to S&P data going back to 1928 (coincidentally around the time of another financial crisis). Across this time period, this year has been the 4th best year on record. Only the beginnings of 1943, 1975, and 1987 have been stronger. If we examine the Dow Jones Industrial Average, for which we can go back to 1897, this year ranks 13th. While this may not be as impressive as the S&P record, 2019 still outperforms 113 other years.
The US was able to build from a low base after 2018’s selloff cheapened the market on most valuation metrics. However, is this a US-only phenomenon? If we limit the sample to start in 1969, (when we have enough indices and a long enough time period for adequate comparisons) then we see a mixed bag. For example, Canada, which trades more like an emerging market despite its proximity to the US, has had its 4th best year. The German Dax and Australian All Ordinaries Indices have experienced their 5th and 8th record year-to-date returns, respectively. However, the UK, Japan, Hong Kong and Taiwan haven’t seen anything out of the ordinary. Brazil, on the other hand, is a laggard (despite a standout 2018).
The old adage is ‘sell in May and go away.’ Should investors follow suit especially after a stellar start? We argue that there is still value in select equity markets. US companies remain profitable and the earnings bar is low. Both of these conditions support macroeconomic momentum. We also like Japanese equities, and efforts to improve corporate governance should boost returns from here. However, the banks-dominated Australian market should continue to see headwinds from the fallout from the Royal Commission and a slowing domestic economy. But overall there are reasons to be optimistic on markets.