Quarterly Market Review & Outlook: Q1 2023

2023 got off to a positive start after a tumultuous year in financial markets in 2022. Global equity markets rallied in January with the Nasdaq posting its best start to the year in two decades. Strong gains across the board were driven by improving investor sentiment as inflation moderated, the labour market showed continued signs of strength and economic data seemed to suggest a soft, or even no-landing, scenario could transpire. Other factors contributing to the rebound in investor sentiment included the China reopening, a softer dollar, further easing of supply chains restraints, declining energy prices and a lower bar for corporate earnings.

The remainder of the quarter unfortunately painted a slightly more uncertain picture. US equity markets pulled back in February and early March as employment data came in much stronger than expected and inflation, although seemingly on a downward trajectory, proved sticky. European equity markets on the other hand, were steadfast throughout February, as a mild winter helped avert the much-feared energy crisis and improving economic data led to calls even Europe could avoid a sure-fire recession.

The MSCI World ended the quarter up 7.88% whilst the S&P500, up 7.02% over the quarter, lagged European Indices with the DAX up 12.25% and CAC up 13.11%. In the UK, the FTSE traded largely flat over the quarter principally due to its overweight to energy and financials. The Nasdaq was the standout performer, up 16.78% over the quarter, with financial pundits calling mega cap growth stocks the new “safe haven trade” amid global uncertainty. This paints a contrasting picture from last year, where growth stocks significantly underperformed on concerns around rising interest rates, as seen in Chart 1 (within the full version, linked below).

In our past market outlooks, we have been proponents for quality growth stocks to outperform in the rebound, so their recent performance doesn’t come as a surprise to us. Looking ahead, we expect high quality growth stocks to lead the market higher as investors favour their healthy balance sheets, low debt levels, non-cyclicality of earnings and high cash flow generating capabilities in a world where the cost of capital has become significantly higher.

Click here to view our Q1 2023 Market Review & Outlook in full, where the team also go on to discuss bond market volatility and go into detail on, and bring perspective to, the recent banking sector turmoil, following the collapse of a number of major financial institutions in the first quarter of 2023.

Please reach out via our contact us page should you wish to discuss or speak to one of our relationship managers or dedicated investment team.

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