With so much economic uncertainty at present, Square Mile CIO, Mark Harries (pictured), has shared his latest analysis on the state of the markets to date in 2023. He also takes a look ahead at the macro outlook and explains why he believes that volatility is set to be an ongoing feature of stock markets in 2023.
The Market Backdrop
After a torrid 2022, bond markets delivered welcome gains to investors in the first quarter of 2023, but only after subjecting them to another white-knuckle rollercoaster ride. Up by almost 5% at the beginning of February, the UK government gilt market then slumped before rallying strongly to finish the quarter with a gain of just over 2%.
During January bond markets powered ahead as falling inflation stoked optimism that peaks in interest rates would be lower than previously thought and that an economic ‘soft landing’ could be achieved. However, a blockbuster US jobs report in February coupled with stronger-than-expected economic data and fresh warnings from central banks that the battle against inflation had not yet been won reversed all of January’s gains and more. Bond markets rallied once again, though, in March as the failure of several banks rekindled fears of recession due to tighter credit conditions. This revived hopes that central banks would be cutting interest rates before the end of the year.
Mirroring the performance of bonds and for the same reasons, stock markets got off to a barnstorming start to the year, global stock market indices rising in January by more than 6% and the UK market up by 4.5%. In February, rising bond yields presented a headwind for growth stocks and therefore US shares in particular but the more ‘old economy’ UK stock market inched higher.
