April General Markets Comments
“Jump around” – House of Pain, 1992.
Should we “Jump Around” as the classic House of Pain’s song recommends? Perhaps, because looking at most financial markets’ year to date returns gives many reasons to jump around, especially in the highly uncertain economic and geopolitical environment investors have to face in 2023; even more if we go back at the end of 2022 when the investment community looked forlorn after such a poor year.
At the end of April 2023, the MSCI World is up 8.96%, the S&P500 8.59%, the MSCI Europe 10.08% and the Topix 8.76% (the only laggard in equities being the MSCI Emerging Markets but it’s still up 2.16% year to date); Credit also glows, with the Itraxx Crossover up 4.79% for the year so far; Government bonds have their say, with US 10 year yields down 45 basis points in 2023, German 10 year 26 bps and Italian 10 year 70 bps. What about Commodities? It’s not as straightforward: some rise, like Gold (+9.1% year to date), some fall, like Oil (down 4.34%).
With these numbers we can draw a logical chain of events: economic activity is expected to slow down, hence a probable peak in Central Banks’ hawkishness quite soon, with long term yields coming down. The latter have a huge impact on valuations, which, unsurprisingly, are on the rise again; to wit, the more expensive MSCI World Growth humiliates the cheaper MSCI World Value in 2023 so far (+16.58% for the former, +1.94% for the latter). Slowing economic activity and lower yields favours Gold, at the expense of Oil, which explains the opposite fate of the two commodities.
Finally, the market seems to selectively worry about a possible banking crisis in the US and its ripple effects across the globe. Financials underperform but don’t collapse overall.
“Jump up, jump up and get down” says the song; we hope markets don’t drive us down too much anytime soon!
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