Reflection on 2023, recession and returns
As we review the events of the first half of 2023, it's evident that global investment markets have experienced their fair share of challenges and uncertainties. From a rolling US banking crisis to slowing growth in China.
However, amidst the concerns, there have been positive developments that instill confidence in the outlook for most assets. Falling inflation has emerged as a significant factor driving broad investment returns.
One of the remarkable trends in the global equity markets has been the 'Magnificent Seven,' a reference to seven large tech companies that have been at the forefront of adopting and benefiting from artificial intelligence (AI). These companies are expected to deliver a substantial earnings growth, in contrast to a decline for the rest of the market. The market's exuberance regarding AI's potential has contributed to the recent rally in global equities.
Despite initial fears of a global recession and rising costs impacting corporate earnings, equity markets enjoyed a period of better-than-expected corporate earnings announcements. The decline in inflation and positive earnings surprises have played a role in alleviating some of the concerns we had during 2022.
However, it's essential to remain vigilant as risks and uncertainties persist. While the recent decline in inflation has been encouraging, questions remain about the persistence of higher inflation. Market reactions to inflation data indicate that lower inflation prints have been met with celebration, suggesting a cautious yet optimistic market sentiment.
As we move forward, it's crucial to recognize that equity markets tend to thrive on pessimism, and current market conditions are unique. The influence of inflation peaking and the potential for generative AI to accelerate future profit growth have contributed to the rally in share prices. While optimism about inflation trends and monetary policies may support equity valuations, it's essential to remain mindful of potential catalysts that could impact market dynamics.
At Peak Portfolio, I am working closely with your fund managers and are committed to guiding you through these changing investment landscapes. I welcome queries at any stage.
It’s normal to feel up and down about your investments as the markets fluctuate. But how everyone else is feeling shouldn’t influence when or how you personally invest. The best investors ignore their emotions around investing – They don’t time the market, and they don’t invest only when they’re feeling good about the world. Instead they keep investing consistently even during times of fear – which in fact is often the best time to invest as asset prices tend to be lower when everyone’s scared of the market.
The markets have generally had a positive month, despite all the continued doom and gloom around the interest rates and the economy. That’s why people are always told to not time the market – it’s just so incredibly difficult to pick which direction the market is heading in.
Those who’ve been sitting on the sidelines and waiting for the economy to improve before investing would’ve missed on the decent returns we’ve seen so far this year.
Many thanks,
Lisa Bentley
Peak Portfolio Management