Market update – Quarter ending 30 June 2023
Global shares impressed in the second quarter of 2023, with the advance led by developed markets, notably the US, while emerging market stocks lagged. US debt ceiling negotiations and continued rumblings in the banking sector caused a bit of a stir, however, investors were largely unaffected by this as hype surrounding artificial intelligence (AI) drove a rally in the IT sector. Other leading catalysts were moderating inflation and the continued strength of the US economy despite higher interest rates. The US economy expanded at a rate of 2% (annualised) in the first quarter and headline inflation slowed to 4% year-on-year – it’s lowest 12-month increase in over two years. Unemployment increased to 3.7% in May, but the US labour market remains historically tight, prompting the US Federal Reserve to address the need for further interest rate rises despite electing to pause at their latest June meeting.
Emerging market equities underperformed as concerns remained over China’s economic recovery running out of steam. Eurozone share markets trended higher on the back of a strong performance from the IT and financials sectors, while the Japanese market hit its highest level in 33 years amid expectations of corporate governance reforms and structural shifts in the Japanese macro-economy. Elsewhere, UK equities were a weaker proposition this quarter as an increase in core inflation, stronger-than-expected wage growth and job market numbers all weighed heavily on sentiment.
In fixed income, government bond yields generally rose (prices fell) as major central banks all continued to lift their benchmark interest rates during the quarter. UK and Australian government bonds saw the biggest decline as inflation seems to linger on in both economies. US debt was also negative, with a sharp increase in the two-year yield marking a further inversion of the US Treasury yield curve. All things considered, most major asset classes closed out the second quarter of 2023 and the first half of the year in remarkably good fashion.
22 August 2023