Investment Update – June 2023

Global equities fell 1% in May, following a 1% rise in April, with gains led by US tech heavyweights. In fact, returns from the US equity market this year have been driven by just 8 companies; Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Nvidia and Tesla. Without these companies the S&P 500 would be flat year-to-date, rather than up 9%. Regionally, Japan was the best performing equity market, with the UK and Europe bringing up the rear.

Bond markets had a negative month, reflecting the resilience of the global economy and a mixed inflation picture. Unemployment rates are yet to rise in major developed markets, providing a tailwind to consumer spending. Consumer confidence has also picked up in response to lower energy prices.

The rally in tech stocks was given a boost by Nvidia’s stellar set of results, with the market capitalisation of the company pushing through the $1tn barrier. The race amongst corporates to adopt artificial intelligence technology, in order to improve productivity and enter new sectors, means investors are betting on Nvidia’s ability to ride the AI wave. Second quarter earnings were revised up to $11bn, a 50% increase to consensus forecasts.

Closer to home, the Bank of England were dealt another blow when UK headline inflation for April came in at 8.7%, above the bank’s forecast of 8.3%. Food price inflation remains close to record highs, increasing the focus on profit margins across the food supply chain. Markets reacted by revising up the peak in UK interest rates to 5.5%, a level at which the economy would succumb to recession.

The Bank remains between a rock and a hard place but it will take some consolation from the weakness in commodity markets in May, where oil prices fell 11%, industrial metals fell 7% and agriculture prices fell 3%. These are real-time inflation indicators and will slowly but surely feed into the price of goods and services across the economy.

Written by:
Charlie Lloyd
Head of Investment, Skerritts

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