Share Prices & Company Research


02 August 2023

The Rises and Falls of the First Half

With the halfway point of 2023 having passed, we can look back on an interesting six months for financial markets. The year began with an optimistic tone as it appeared major economies were on track to avoid recession; central banks were reaching the peak of interest rate increases and inflation data was moderating. Equity and bond markets produced strong returns early doors, carrying some of the momentum gained at the back end of 2022. March brought the first wobble, with two regional US banks collapsing and Credit Suisse being taken over by Swiss rival UBS. Having calmed in the aftermath, concerns crept back as UK inflation data came in higher than consensus forecast and labour market data, comprising both employment and wage growth, was strong. Bond markets reacted negatively, grappling with the notion of stickier inflation and potential further interest rate hikes throughout the year in both the UK and US.
Despite wobbles, some developed equity markets have produced strong returns through the year so far. The flagship US equity index, the S&P 500, shrugged off concerns around the banking sector, rallying through the second quarter on the back of strong share price performance from a handful of larger index constituents. Clustered within the technology sector, the re-emergence of the artificial intelligence (AI) theme is driving returns. Alphabet, Apple, Amazon, and Microsoft are all up nearly 40% year-to-date as investor confidence around AI ramps up. Perhaps the more interesting data point is Microsoft being the only name with a positive increase year-to-date in expected earnings. In short, expansion of the earnings multiples placed on these companies has been the key contributor to performance so far in 2023. The AI theme is clearly striking some enthusiasm in market participants.
With attention focused domestically, Japanese equities quietly posted strong returns through the first half with the Nikkei 225 up circa 30% at the time of writing. Corporate reforms have long been a theme in Japan, with a push to improve capital efficiency and release excess balance sheet cash to shareholders. Having been talked about ad nauseum during meetings with Japanese equity fund managers, corporate reforms have been in the pipeline for a while, seemingly always on the brink of coming to fruition. Has it finally happened? Or is something else driving the Japanese market higher?
During a research team review of the UK Smaller Companies Investment Trust sector, one name consistently features in portfolios, the luxury watch retailer Watches of Switzerland Group. With headlines revolving around cost-of-living increases and higher mortgage rates squeezing discretionary spending, face-value questioning of the position feels rational. Diving deeper may reveal an attractive future growth profile, however.
Sticking with the cost of living and mortgage rates squeeze, June saw further action in the mortgage market with banks pulling new mortgage offerings on expectations of further interest rate rises. Stickier inflation figures and higher than expected wage growth data were the culprits for sending short-dated gilt yields higher along with five-year interest rate swaps, the latter a key factor in the mortgage pricing process. With the Bank of England signalling further tightening of monetary policy should there be evidence of persistent inflation, confidence in the near-term economic outlook is likely to be shaky.
This article was taken from the June 2023 issue of Market Insight. To subscribe to our investment publications, please visit
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
The Rises and Falls of the First Half
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