Market Update – May 2023

As we continue to wait out in ‘patience mode’ whilst the current cycle of uncertainty continues, experts do predict this to be resolved over the next few months, followed by a more optimistic outlook thereafter.

Perceived economic outcomes are still uncertain at this time, however, and although risk assets remain well off their cycle highs, it is felt that markets are not paying enough just yet to take on excess risk. As such, capital preservation remains important for the time being, as it would not be unsurprising to see markets test their lows of 2022.  However, neither do we expect the lows to be maintained for very long either, as they would be the result of either the long-expected weakening of economic activity, or some sort of shock to the system.

At the beginning of the year, economists were almost unanimous in forecasting a recession in the US, UK, and Europe. Even the Bank of England expected the UK to be entrenched in a recession for the whole of 2023. Yet, five months later, the “most anticipated recession in history” has not come to pass, and it is only Germany that has recorded two consecutive quarters of negative growth amongst the major countries.

A mitigating factor in the UK and Europe not entering recession has been the weather. Winter turned out to be pleasantly warm, relative to long-term averages and expectations. This reduced consumer demand of energy for heating and also punctured the price of natural gas that had been squeezed up aggressively in response to supply reductions from Ukraine and Russia. Similar patterns have also been witnessed with oil prices.

Higher than expected consumer expenditure could have also contributed to the defence against a recession.  Buoyed by extra savings that were accumulated during lockdowns and by rising wages, consumers are almost single-handedly keeping some economies afloat. Although, this expenditure is also conversely affecting the speed at which the levels of inflation are reducing, meaning the goal of reaching greater economic stability is taking slightly longer to achieve than anticipated.  This lag in recovery has not served to satisfy the central banks who continue to aim for lower levels of inflation and has led to continued interest rate rises above the peaks previously anticipated.

If we were to characterise the investing year so far, one could say that it has been a period where several potentially nasty accidents have been avoided, such as the US debt ceiling debacle and the collapse of any further US banks. The result of this has been low single-digit gains for a typical private investor in a balanced portfolio. However, whether we are in the beginnings of a new bull market – or just another bear market rally – is the subject of widespread debate and one that will only be laid to rest with the benefit of hindsight in due course.

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.