Given the mini-financial crisis surrounding the likes of Silicon Valley Bank (SVB), the overall equity market continues to be relatively well behaved. This has been substantially supported in the US by large cap technology stocks.
The US technology sector has rallied 20% since the start of the year, whilst non-technology stocks have eked out only 4.5%, trailing the headline S&P 500 index which has returned 8.6%. The much-fabled FAANG index (Facebook (Meta), Apple, Amazon, Netflix and Google (Alphabet)) returned 36% over the same period (albeit it did fall 40% in 2022).
A relatively few large companies have driven the index towards double-digit returns in 2023. Most stocks, while positive, remain subdued.
Source: Bloomberg, Artorius
Peak inflation may ease pressure on Central Banks?
Inflation remains higher than policymakers would want but is heading lower. The key for interest rate decisions is how quickly inflation eases in coming months. If policymakers expect inflation to decline quickly back towards their targets of 2% then interest rates may stop rising in the next few months.
So, the recent inflation data especially in the US is a welcome update. Whilst there are many ways of cutting the inflation data, the Federal Reserve has highlighted the measure that excludes volatile factors, such as food and energy, as well as housing.
Whilst this may mean that the resultant ‘Core Service inflation excluding housing’ is a small part, 27%, of the overall inflation environment faced by the consumer, the Federal Reserve looks at it for decision making purposes. This has fallen back but still appears to be inconsistent with a 2% target, which leaves the Federal Reserve likely to raise rates again in May. But beyond May the market is at odds with the Federal Reserve, who expect rates to remain stable over coming months, while the market is pricing rate cuts later this year.
That the bond market is discounting a reversal in policy and cuts to interest rates in the second half of the year appears overly optimistic without a significant slowdown in economic growth, which in itself would be taken badly by the equity market.
All expressions of opinion reflect the judgment of Artorius at 21st April 2023 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions. Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.