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The PIN Fund Falls in Q4 2018 But Will Q1 2019 Be Worse?

Peter Hemple reviews our fictional fund of property related shares

Global stock markets fell during the fourth quarter of 2018 and the UK did not buck the trend, with the FTSE 100 falling by 10.5% over the three months. Despite further protracted and unproductive Brexit discussions, which are currently frightening many property investors, mortgage lenders and housebuilders in the UK, the PIN Fund did not perform much worse the FTSE 100, with share values falling by 12.1% but after some large dividend payments from Barratt Developments and Rightmove, the Fund made a loss of 10.6% overall in Q4.

However, as the saying goes “when the US sneezes, the UK gets a cold” and signs from across the Atlantic do not bode well for the start of 2019, for the stock market at least, especially as the UK prepares to leave the European Union and very few people can predict how that is going to go over the next 3-6 months. Stock markets in the US fell hard in Q4 when the Federal Reserve hiked interest rates for a fourth time in 2018 and revised down its outlook for the US economy.

The S&P 500 slumped by 14% in the fourth quarter while the NASDAQ crashed by 17.5%, alleviating stock investors of more than $2trn in just over 12 weeks. A week before Christmas the Fed unanimously voted to raise the target range for the federal funds rate to 2.25-2.50%, citing the current strength of the labour market and high levels of economic activity in the US as a rationale for the decision.

However, the US central bank has now revised its expectations for future rate hikes and is now forecasting two rates hikes in 2019 instead of the three previously forecast. It has also lowered its GDP growth forecast for 2019 from 2.5% to 2.3%.

Despite these downward revisions, something happened in April 2018 that the US economy has not seen since the US Labour Department started collecting data in 2000 – the number of jobs openings exceeded the number of people that are unemployed – and since then the gap has continued to grow with more than 7m job openings and around 6m people registered as unemployed. No surprise then that wage growth in the US is currently at a nine year high of 3.2% per year and interest rates are being raised to slow down inflation.

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