Fears of a global recession had sent the markets into a state of panic in late 2018, but they seemed to have regained their calm over the first four months of 2019. A single tweet by President Trump announcing new US tariffs on Chinese goods on 5 May was enough to send them plunging into uncertainty again. The US S&P 500 fell 6.6% over the month while the European Stoxx 600 was down 5.7%. For a while, market operators had managed to convince themselves that the threats to world trade were only part of the President's very unusual operating style, but they suddenly became aware of the structural risk that the US-China trade war presented for global growth.
This wake-up call occurs just as numerous warning signals are flashing. PMI indexes, which reflect purchasing managers' production expectations in the industrial sector, declined not only in the United States (down 0.7 points to 52.1), but also in China (down 0.7 points to 49.4) and the eurozone (down 0.2 points to 47.7). The geopolitical environment is also deteriorating with rising tensions in Iran and North Korea, and with the prospects of a no-deal Brexit. An upsurge in risk aversion has undercut sovereign rates, with the 10-year German Bund down 0.2% to -0.205%, the lowest level since 2008, and the yield on 10-year US government bonds down 0.3% to 2.12%. With US 3-month rates at 2.34%, the negative spread is the highest since 2007, which reflects growing concerns about the economic cycle.
Faced with the risk rising from this series of negative indicators, the market operators' Pavlovian and panurgic reaction has been to turn towards the central banks for another round of monetary easing, one that would bolster the markets independently of fundamental trends. The decline in interest rates also reinforces TINA (There is no alternative to equity investments), since the yield on bond investments will remain virtually zero as long as interest rates remain low, and capital risk increases as soon as interest rates begin to climb again.
More than ever, we will refrain from anticipating market trends, and will focus instead on our core business of investing in blue-ribbon companies, as sustainably profitable as possible regardless of cyclical trends.
In May, the Rouvier Valeurs compartment was very resilient, limiting its decline to 3.1% for the month, and still up 11.8% year-to-date at the end of May (Rouvier Évolution, the hedged version, was down 2.7% for the month and up 7.3% for the year). Rouvier Europe declined more sharply, down 6.5% for the month, and up 9.8% at the end of May, reflecting its more offensive positioning. Rouvier Patrimoine continued to fulfil its contract and declined only mildly, by 0.4% in May, bringing its performance since the beginning of the year to 2.7%.