Market Update – March 2023

You have probably read big headlines in the last few weeks with news of the banking sector, with the bankruptcy of the sixteenth largest bank in the United States (Silicon Valley Bank) and the fact that the second largest bank in Switzerland (Credit Suisse) had to be rescued by the biggest (UBS). Despite these headline events, however, equity markets still performed relatively steadily in March 2023.

Stubbornly high inflation remains a key concern for many, denting hopes of a ‘goldilocks’ outcome whereby moderate growth in economies continues but inflation gradually subsides, allowing interest rates to come down. Central banks responded cautiously to the latest data, with the US Federal Reserve, Bank of England, and the European Central Bank all increasing interest rates and signalling that, unless inflation starts to slow, it seems likely that rates will have further to go before they peak. Markets seem to expect that central banks will be quicker to cut interest rates now that the first major cracks have started to appear in the financial sector, and the view that higher interest rates might exacerbate this.

Particularly in the UK, equities, having prospered last year thanks to a weaker pound and the earnings boost from energy stocks, are finding the going a bit heavier this year. The flagship FTSE 100 Index finally breached the 8,000 level in February before abruptly giving up all of its gains for the year when problems arose in the banking sector. This was largely due to fears of global economic weakness putting downward pressure on the energy and mining sectors which have an outsize impact on the index. It must be emphasised though that none of the UK’s banks were deemed to be at risk, and indeed HSBC turned out to be an opportunistic buyer of Silicon Valley Bank’s UK arm.

The Spring Budget was another chance for Chancellor Jeremy Hunt to rebuild the government’s reputation for fiscal and economic competence, which was largely achieved. One pleasant surprise for UK savers was the abolition of the cap on the Lifetime Allowance for personal pension assets which garnered much media attention, although the Labour Party has pledged to reverse that decision should it prevail at the next General Election.

As the bankruptcies in the banking sector suggest, the short-term outlook for markets remains uncertain. One on hand, this might prove to be the low point from which a gradual recovery, subject to reducing interest rates, starts to take shape. However, on the other hand, this might also be a harbinger of things to come. Our view is that waters are likely to remain choppy throughout 2023 and that investors should be prepared to ride the in-evitable waves, but it remains key to take a long-term view and to remember that markets tend to reward patient investors.

If you would like to look into opportunities for investing at the moment, please do not hesitate to get in touch with an Integrity365 Independent Financial Adviser.