Commentary: equities finish 1H23 strong
Overall, the 1st half of 2023 has been rewarding for global equity markets. The US and Europe delivered considerable gains, with S&P 500 gaining 16.4%, while MSCI Europe rose 9.6%. In contrast, due to soaring inflation and a consequent monetary response in the UK, FTSE 100 and FTSE 250 have declined by -0.3% and -3.7%, respectively. Emerging markets have also underperformed, with China’s declining growth prospects being the primary reason.
In the US, the large-cap growth stocks led the rally, with market-cap weighted S&P 500 outperforming its equal weight peer by 10.3 percentage points. This was partly due to a recent rally of large-cap tech stocks in the face of AI-related success.
Notably, these results come in contrast to the 2022 year-end expectations, as most investment banks forecasted a rather timid growth in equities. The surprise is largely attributed to a better-than-expected macroeconomic developments in DMs, including retreating inflation levels and reduction in energy prices.
As of now, investors should stay diversified and focus on quality stocks with strong balance sheets and promising earnings outlooks. The risks for 3Q23 include declining forward earnings expectations and more potential tightening from the Fed and the ECB.
