This note contains a section on recent developments, our views, what we are watching, and our portfolio strategy. These developments may not mean changes to your portfolio so please contact your Client Advisor for the latest update on your portfolio.
Markets at a glance
- With the earnings season underway, the big takeaway so far has been from US banks. There were market fears that the US banking turmoil may resurface but financials have reported positive earnings growth bolstered by major US banks. These results have helped alleviate fears that the stress seen in regional US banks would turn into a more systemic risk. As a result, it was a volatile week in US equities, falling during the first part of the week before a notable rebound towards the end of the week.
- The US Federal Reserve (Fed) looks set to increase its interest rates 25 bps to the 5-5.25% range this week. In contrast with the markets’ expectations of interest rates cuts, we think the Fed will hold interest rates at this level for the rest of 2023 in an effort to bring inflation closer to its 2% target.
- The US economy grew in the first quarter of this year but slowed significantly and missed analysts’ expectations. Business investment offset resilient consumer spending as the Fed’s tighter monetary conditions begin to bite. We think a shallow recession in the US is likely. This week, services and manufacturing data for April will help us gauge the magnitude of the growth slowdown – although services are likely to show resilience, underscoring our shallow recession outlook.
- The European Central Bank (ECB) is also widely expected to lift its policy rates by 25 bps. Markets expect further increases in interest rates even if the Fed pauses, but not that much as economic growth has nearly stalled in the last quarter of 2022 and the first of 2023. The ECB continues to see inflation as still too high, although it is expected to have slowed down more visibly in April. We think that the divergence in ECB/Fed policies will likely continue to support the euro vs the US dollar.
- Unlike in the West, Central banks in Asia-Pacific are increasingly pivoting towards a monetary policy that supports growth. This week, we’ll be watching for the decision from the Reserve Bank of Australia, which is expected to hold interest rates unchanged.
Portfolios at a glance
Here’s what’s happening in our flagship portfolios:
- As mentioned above, we are at the midst of the earnings season. We want to use this opportunity to highlight a few companies we hold in portfolios that have reported robust results in the past week. Going into the quarter there was some apprehension about Big Tech. However, these concerns have been unfounded so far, as Alphabet, Amazon and Microsoft all delivered strong results. Out of the three, Microsoft stood out as their cloud business Azure continued to grow strongly. In the healthcare sector, Thermo Fisher’s results were slightly ahead of expectations with management reiterating guidance for 2023, unlike the recent disappointments from some of its peers.
- Looking ahead, although market confidence has improved this year, we maintain a slightly cautious near-term macroeconomic and market view due to recession risks we see ahead and an uncertain corporate earnings outlook. In addition, as economies enter the late stage of the market cycle, risks of heightened volatility tend to increase.
- As a result, we maintain our current near-term strategy of:
- a below-normal equity exposure and above-normal fixed income exposure,
- a bias towards quality investments within equities, and
- a preference for developed market government bonds over riskier bonds within fixed income.
Past performance is not a reliable indicator of future returns.
Market Performance
Data as of 28/04//2023. Source: Bloomberg. Note: The Yield and P/E figures for stock markets respectively use 12m forward dividends and earnings divided by the index’s last price. For bond markets, the yield to maturity is used.
Past performance is not a reliable indicator of future returns.
Important Information
Information correct as of 02 May 2023.
This document is designed as marketing material. This document has been composed by Brown Shipley & Co Ltd ("Brown Shipley”). Brown Shipley is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales No. 398426. Registered Office: 2 Moorgate, London, EC2R 6AG.
This document is for information purposes only, does not constitute individual (investment or tax) advice and investment decisions must not be based merely on this document. Whenever this document mentions a product, service or advice, it should be considered only as an indication or summary and cannot be seen as complete or fully accurate. All (investment or tax) decisions based on this information are for your own expense and for your own risk. You should (have) assess(ed) whether the product or service is suitable for your situation. Brown Shipley and its employees cannot be held liable for any loss or damage arising out of the use of (any part of) this document.
The contents of this document are based on publicly available information and/or sources which we deem trustworthy. Although reasonable care has been employed to publish data and information as truthfully and correctly as possible, we cannot accept any liability for the contents of this document, as far as it is based on those sources.
Investing involves risks and the value of investments may go up or down. Past performance is no indication of future performance. Currency fluctuations may influence your returns.
The information included is subject to change and Brown Shipley has no obligation after the date of publication of the text to update or amend the information accordingly. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it.
This is non-independent research and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
All copyrights and trademarks regarding this document are held by Brown Shipley, unless expressly stated otherwise. You are not allowed to copy, duplicate in any form or redistribute or use in any way the contents of this document, completely or partially, without the prior explicit and written approval of Brown Shipley. Notwithstanding anything herein to the contrary, and except as required to enable compliance with applicable securities law. See the privacy notice on our website for how your personal data is used (https://brownshipley.com/en-gb/privacy-and-cookie-policy).
© Brown Shipley 2023
.png?width=650&resizemode=force)