This note contains an overview of our market 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.
At a glance
- This week, the conflict between Israel and Hamas continued to dominate the headlines. Looking at markets, oil prices rose, and, unlike the previous week, equity prices fell.
- Only time will tell if the conflict significantly impacts markets. We’re already positioned conservatively but are monitoring whether the impact remains contained or could start being felt across markets, especially if tensions broaden to the wider region.
- In the context of our flagship portfolios, the fall in equity prices this week hasn’t greatly affected performance. Equities make up a smaller portion of our portfolio relative to our typical long-term strategy and, those we do own are weighted towards more low-volatility stocks. Our positions, on net, have been broadly flat last week.
- Turning to the fixed income market, the upward trajectory of government bond yields seemed to slow towards the end of last week, but only after the yield on a 10-year US Treasury briefly hit 5% – a level not seen since 2007.
- The shift in momentum came as US Federal Reserve Chair Jerome Powell gave a gentle pushback on the prospect of further rate increases. He noted that a “range of uncertainties” makes the task of controlling inflation without doing “unnecessary harm” to the economy more difficult. These comments suggest to us that we are likely at or close to the peak in US interest rates and so we’re positioned accordingly.
- Elsewhere, UK inflation came in slightly higher than expected but didn’t lead to markets expecting further rate increases as the UK economy continued to slow.
- In China, economic growth for the third quarter was better than expected. However, markets didn’t react, and Chinese equities continued to fall amid a worsening property crisis
How we’re positioned
- As we enter another week of geopolitical unrest, and given the market backdrop, we have not made any changes to our portfolio positioning. We still hold more high-quality government bonds and fewer riskier bonds and equities relative to our long-term asset allocation.
- If tensions in the Middle East remain and developed economies continue to battle high inflation, investors may turn away from equities and flock to the guaranteed yield of high-quality government bonds. If that is the case, portfolio performance will benefit as this demand would push bond prices higher.
- Within equities, we own low-volatility stocks across the US and Europe. These stocks are in sectors like consumer staples (such as food and household goods) and healthcare, which we believe are likely to perform better than the overall market if uncertainty was to increase.
Past performance is not a reliable indicator of future returns.
What we’re watching
- The European Central Bank (ECB) meeting is on Thursday, where we expect the ECB to leave interest rates at 4.50%.
- Purchasing managers’ indices (PMIs), which serve as a timely indicator for economic activity, are also due on Tuesday in the Eurozone, UK and US. We believe these will likely show a slowing in activity, painting a recessionary picture in several Eurozone countries and the UK.
- We believe that the first US economic growth estimate for the third quarter is likely to have remained solid, though more timely indicators such as the PMIS point to slowing activity going forward.
Important Information
Information correct as of 23 October 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
