Based on investment conferences attended and digesting of various economic analysis, we are pleased to provide you with an update on the economic market performance for 2023 so far and offer insights into what we can expect for the remainder of the year. Milestone Advisory’s Darragh Hogan says “our aim is to present this information in simple terms to help you understand how it may impact your pension and personal investments”.
Market Performance in 2023:
2023 has been positive to date but volatility remains in the markets. Global economic background has been dominated by rising interest rates, persistent underlying inflation, and threats to global growth. Central banks, including the ECB, Bank of England, and US Federal Reserve, have been raising interest rates. Rising rates are impacting economic growth, and central bankers are trying to balance inflation and recession risks. Headline inflation rates have peaked and are declining, mainly due to lower energy prices. Tight labour markets are a concern for central bankers. The World Bank revised global economic outlook upwards, with expected growth rates for 2023 higher than previous forecasts. US Federal Reserve has maintained interest rates but suggests further tightening may continue.
The year 2023 has been a positive one for the financial markets, with both stocks and bonds delivering strong returns. Here are some key highlights:
Equities
Stock markets have experienced a good run, particularly in the United States. The S&P 500, a widely followed stock market index, has entered a bull market phase, indicating a period of sustained growth. This has benefited equity-focused investments and contributed to policyholder returns.
Bonds:
Bond yields, which influence fixed-income investments, have been favourable. Yields have reached their peak levels, making bonds an attractive option for investors. Bonds have performed well, providing steady income through regular interest payments.
Global Markets:
The United States has outperformed European markets, mainly driven by the technology sector. However, the Asia Pacific region has lagged behind due to its heavy exposure to real estate and financials, with limited representation in the technology sector.
Outlook for the Rest of 2023:
Looking ahead, we anticipate the following trends and factors that may shape the investment landscape for the remainder of 2023:
Equities:
Investment managers maintain a positive outlook for stocks. Earnings reports have been strong, indicating healthy profitability for companies. Both consumers and corporations have solid financial foundations, further supporting the stock market. While challenges may arise, investment managers believe equities can continue their positive momentum.
Bonds:
Bond yields are expected to stabilise or potentially decline slightly from their peak levels. This offers attractive value for fixed-income investors, as bond prices tend to rise when yields fall. Bonds will continue to play a crucial role in diversified portfolios, providing steady income and acting as a potential hedge against stock market volatility.
Market Risks:
We are mindful of certain risks that could impact the investment landscape. These include potential changes in inflation rates, interest rate forecasts that may not align with expectations, and concerns about the stability of the banking system. Geopolitical tensions, such as conflicts between nations, are also important factors to consider.
The World Bank published its latest global economic outlook at the beginning of June. The world economy is expected to expand by 2.1 per cent in 2023, which is revised upwards from the January forecast of 1.7 per cent. The upward revision to growth forecasts is due to the greater resilience of the world economy. The outlook for the world economy in 2024 is for growth of 2.4 per cent, down from 2.7 per cent in January. This downward revision is due to the cumulative effect of the interest rate tightening seen to date. While the overall outlook for 2023 is slightly more positive, these are still modest rates of growth.
A well-diversified portfolio can provide significant benefits in volatile markets, helping to reduce overall risk, provide a more stable return, and take advantage of investment opportunities in different markets/asset classes. It is important for investors to carefully consider their investment objectives, risk tolerance, and time horizon when constructing a well-diversified portfolio that suits their individual needs.
Near-term challenges persist but staying diversified can create opportunities for long-term investors. At Milestone Advisory, we base our investment advice on the long-term fundamentals rather than short-term market noise.
Please keep in mind that this information is provided as a general market outlook and should not be considered as personalised financial advice. Please feel free to reach out to me directly (darragh@milestoneadvisory.ie) to arrange specific guidance tailored to your individual circumstances.
At Milestone Advisory, we are committed to keeping you informed and ensuring that your personal investments, pension investments and corporate investments are positioned to benefit from market opportunities while managing potential risks. We are dedicated to helping you achieve your long-term financial goals. For the latest updates, subscribe to our newsletter here.
