On the back of widespread gains made by share prices last year, equity market investors entered 2014 in an upbeat mood.
However, sentiment has been challenged in recent months by a combination of persistent cuts to economic growth forecasts for the US and China, in particular, concerns about the threat of deflation in Europe and increasing geopolitical tensions.
This has made further progress by equity markets more difficult to come by than many envisaged would be the case at the turn of the year.
The US economy was hit hard during the first quarter of the year by the severe Arctic weather conditions that swept across most of North America, raising some doubt in the minds of investors about how quickly growth would be restored. In China, the authorities have been grappling with the difficult task of trying to contain a credit boom while not derailing economic growth, all this while managing a transition from an investment- led economy to one driven more by consumption. News of bond defaults and slowing economic growth there have unsettled investors in recent months. Meanwhile, in Europe, stagnating growth and falling inflation have raised the spectre of deflation which has further tested investors’ resolve.
Yet, despite these adverse factors, equity markets have in general been resilient as investors have climbed the wall of worry. A belief that the authorities around the world will continue to do all they can to support economic growth has bolstered this attitude towards the issues being encountered.
At the start of 2014, investor sentiment was arguably too buoyant and perhaps a period of consolidation and reflection was what was required.
This phase of the market cycle may yet have further to run in the coming months, but will arguably create a firmer base from which equities can progress over the medium term as the global economy continues its long road to full recovery from the fallout that resulted from the financial crisis in 2008.