Market Update with Aled Phillips

On the back of a relatively benign start to the year’s economic developments, last Thursday saw the Bank of England raise its base rate by 0.5% to 4%. As Niche Operations Director and Chartered Financial Planner, Aled Phillips, explains though in his latest market update, global markets continue to look ahead with cautious optimism:

Inflation, interest rates and economic growth remain the three drivers for investment markets. Institutional investors in their 2023 outlooks warned that (particularly in the US) inflation will remain higher for longer, meaning that interest rates would need to follow.

We have, however, seen the market take a different stance in January, focusing on the more optimistic scenario that inflation is rolling over and as growth is falling, central banks may well need to come in and support the economy, by easing interest rates towards the end of the year.

Expectations of lower interest resulted in increases in the higher risk areas of equity markets, such as Technology, Europe and Emerging Markets - the latter supported by another fall in the US dollar and optimism over China’s reopening.

In the US, stocks rallied with the S&P 500 climbing 6.3% in sterling terms, but this was overshadowed by the Nasdaq which ended January up 10.7%.  Technology stocks are extremely sensitive to financial conditions, so it is not surprising that they bounced back strongly on hopes of loosening financial conditions.

Within the bond market, yields returned to a more bullish stance, witnessing falling yields and therefore improving credit conditions.  Global corporate bond prices gained 2.2% in January whilst High Yields bonds also performed well suggesting that any distress in credit conditions is not imminent.

The only major asset class that lost ground in January was commodities and these falls helped support the optimistic outlook for a glided soft landing.

As ever, the purpose of these updates is to give you an overall picture of the current market, rather than being a call to action, as we have already factored this into your financial plan. Please don’t hesitate to contact your adviser if you have any questions.