Global equity markets had a mixed third quarter, with jitters over the outlook for some regions weighing on sentiment, before a resumption of the upwards trajectory for major equity indices.
The US, UK, and Japanese markets, as well as some European indices, endured varying degrees of scepticism over valuations, particularly during September, but by the close of the month bullish behaviour had reasserted itself.
That tone has continued into the fourth and final quarter of 2017, with record highs being seen in the US and the UK, as well as areas such as Germany.
In the US, the Dow Jones Industrial Average and the S&P 500 continue to break fresh ground, the Dow now up 17% year-to-date at 23,110 points, and the S&P 500 ahead by 14% at 2,561 points.
Meanwhile in Europe Germany’s Dax index has outstripped them all, soaring almost 24% year-to-date. The UK has risen less dramatically, but nonetheless it continues to set its own records, up 5.6% so far in 2017, sitting just below its record peak of 7,598.
Further afield in Japan, the Nikkei is also up by double-digit amounts, trading at 21,363 points having climbed over 11%.
Experts expect further gains for equities from here, but with some nuances.
Tamsin Evans, head of multi-asset at River and Mercantile Group, said the largest UK companies would be more dependent on the strength of sterling from here.
“We have mixed views on the outlook for the next 12 to 18 months. This is especially so with FTSE 100 stocks, which are highly subject to the strength of sterling against other currencies,” she said.
However, when it came to smaller UK stocks, she remained positive. “We are a little more optimistic on UK mid-cap stocks and we have recently taken a small position in the FTSE 250,” she said.
“These stocks have usually traded at an implicit discount to their large-cap rivals, a difference exacerbated by indiscriminate selling in the wake of Brexit negotiations, and we like their greater exposure to the UK economy which, despite uncertainty, is not as bad as many think.”
Looking further afield, she said she expects equities to continue to eke out returns.
“Beyond the UK’s shores equity prices are high, but despite international tensions over North Korea we see no imminent catalyst for them to stop rumbling on upwards for the rest of this year and heading into 2018,” she added.
“Compared with other return-seeking assets, we see greater potential in international equities – particularly in the eurozone – and accordingly we are slightly overweight this asset class.”
Darius McDermott, managing director of Fund Calibre, added the asset class continued to offer opportunities for investors despite valuation levels.
“The question for investors is whether this is the high point or not. With government bonds still very expensive – and delivering a negative return when accounting for inflation – and cash paying next to nothing, there remain plenty of factors to support further gains for equities in the near term.”
Elsewhere, gilts and treasuries continue to diverge this year, with treasuries – while off year-highs – still maintaining yields on 10-year bonds well above 2%, while UK gilts are down at 1.29% currently and struggling to close in on the peak of 1.5% seen in February.
Meanwhile in commodity markets, oil has made some progress, breaking out of its recent trading range to touch highs not seen since 2015 after reaching $59.49 in early October.