Political noise is a distraction in any market environment but in an election year the clamour is heightened. So, in February we had one of our holdings, Nat West Bank, reporting its biggest annual profit since the 2007 financial crisis but in the days that followed seeing its share price fall on speculation of a possible windfall tax on the banking sector. As an investor, sometimes it feels like you can’t win.
After a challenging 2023 for equity investors holding anything other than the narrow band of large US stocks known as the Magnificent 7, there was hope at the end of the year that better times were on their way. While the risk of recessions lingered (in February the UK was confirmed to have slipped into a technical recession in Q4 2023), inflation was coming down and bond yields were falling in the expectation that interest rate cuts were just around the corner. But alas, investors jumped the gun as January saw sentiment sour and equities reverse as one central banker after another extinguished early rate cut hopes.
A favourite bedtime story for my son is Eric Carle’s The Very Hungry Caterpillar. The larvae eats its way through many fruits and sugary treats day by day, before blooming into a beautiful butterfly. Given my son’s tendency to eat all snacks placed in front of him, I sometimes wonder if the story’s words are in fact a memoir of his day! This theme of sluggish growth before gorging its way to beauty is somewhat reminiscent of the current UK equity market.
Interest rates, growth and financial markets
About 70% of world market capitalisation is now attributed to the ‘Magnificent Seven’ stocks1. Should investors be worried about this level of concentration?
Discussing the extent of cuts and the implications for markets?
We expect 2024 to outperform the current pessimistic economic forecasts but struggle to beat the optimism priced into equity markets.
Talk of early 2024 US rate cuts, which spurred a strong rally in bonds and equities globally, has seen a significant reversal.
The growth in the breadth and depth of the social bond market is impressive, but there's still more to come.
Inflation is moving in the right direction and the US is seemingly at or near peak interest rates. What about the UK and Europe?
The Bank of England is suggesting inflation is becoming embedded in the UK so rates may stay high for longer; possibly at their current level for two years. Could it be that the Bank has got it wrong? Steven Bell, Chief Economist EMEA, explains why he thinks this may be the case.
Against the difficult backdrop of high inflation and rising interest rates, the portfolio manager discusses some new entrants and disposals from the portfolio.
US tech related stocks is creating a conundrum for managers with a remit to build diversified portfolios. But could AI be its saviour also?
Managers of The Global Smaller Companies Trust, Peter Ewins and Nish Patel, discuss the prospects for smaller companies against the backdrop of inflationary pressures and higher interest rates. They will also cover how the economic backdrop is informing their portfolio construction. Register now to watch live or later on demand
UK Equities - The song remains the same
Despite the daily diet of alarmist headlines, since the fourth quarter of last year we have witnessed an improving picture in certain sectors of the commercial property market, most notably industrials, logistics and retail warehousing. A pick-up in investment activity has seen prices firm.
A more benign economic backdrop and supply constraints within the physical property sector have supported a positive start to 2023. Where do we go from here?
Rising inflation and interest rates, in combination with geopolitical concerns concentrated around the war in Ukraine and zero-Covid policy in China, weighed on global equities in 2022. As we look ahead, it is clear that the outlook for inflation and interest rates will continue to be key market drivers in 2023. However, inflation appears to have moved past its peak and the focus is now turning to its persistence. This will inform how soon central banks shift from hiking rates towards a more accommodative stance.
Our original research review of the hydrogen economy a few years ago led us to conclude that hydrogen would play a key role in decarbonisation.
After a dismal year for markets, William Davies gives his thoughts on risks and opportunities in the market as we head into 2023. While there is plenty to be cautious about, a repeat of 2022 seems unlikely.