The stock market slump is not over

In spite of the recovery that has taken hold since the turn of the year, we think that equities have further to fall. It is well known that UK stock indices are heavily weighted towards energy companies. As a result, given the violent slide in the oil price since October, it is unsurprising that UK equity indices have fallen. But non-oil stocks have had an equally turgid time, having been caught up in the global sell-off. We think equities will take a further leg down this year for two key reasons. First, growth in the world’s two biggest economies is set to slow. Credit growth in China – the best leading indicator for activity there – continues to fall. Meanwhile the combination of the Fed’s tightening cycle and a fading boost from fiscal policy will take its toll in the US. Second, we don’t expect oil prices to recover which, combined with a rise in the pound if a no deal Brexit is avoided, would weigh on the foreign earnings of UK-listed companies.