• 2023 is off to a strong start
  • Softening inflationary pressures
  • United States (US) gross domestic product (GDP) momentum

The New Year has started off with the cheer, as both Equity and Fixed income assets were generally trending up during January. The main factors which effected positive results were falling inflationary pressures and stronger than expected GDP growth in the US. The US S&P 500 index (S&P 500 Total Return EUR Index), which represents major 500 US companies increased by 4.4% during the month. Developed market’s equities (MSCI World Total Return EUR index) increased by 5.2%. Emerging markets’ equities (MSCI Emerging Markets Index) generated 7.85% return.

Relief as inflation cools

As the absolute level of inflation remains high, the investors paid a lot of attention to the US December inflation reading. The data did not disappoint - the US consumer price index rose 6.5% year-over-year (YoY) in December, which was the lower reading than YoY increase of 7.1% in November and peak YoY increase of 9.1% in June. It matched consensus expectations, which was a small but necessary step towards easing some of the pressures. Paired with the October and November data, core inflation (which excludes the volatile categories of food and energy) has now slowed for three consecutive months, suggesting that a pattern of disinflation is emerging. Investors have gained more confidence that the inflation tide is receding, helping sentiment to stabilize.

United States Inflation rate

Source: Bloomberg L.P.

US GDP data eases recession worries

Latest data showed the U.S. economy fared better in the fourth quarter than analysts expected, GDP increased at a 2.9% annualized rate (versus 2.6% expected) in final three months of 2022 after a 3.2% gain in the third quarter. It demonstrated the continued resilience of the economy and consumers. Markets reacted positively as investors probably gave more credibility to the US Federal Reserve’s soft-landing narrative. Global markets also assessed the US GDP news well, with European and Asian shares rising.

Earnings in focus

With fourth quarter earnings’ season underway, investors are searching for insights into the health of the economy. Largely, businesses have grown more cautious with their guidance, as the corporate profits are feeling the weight of slowing demand and rising labor costs however, the key question coming into earnings’ season could be whether the pessimism surrounding 2023 earnings has gone too far. Naturally, it could be expected more upbeat trading activity in case further guidance fails to confirm the pessimism.

“House view” update

Investment team considers that positive and negative factors currently warrant neutral risk allocation, therefore the neutral risk allocation budget was left intact in January.  As markets have rotating from Defensives to more Growth oriented segments in recent weeks, decision was to reduce Consumer Staples and Utilities sectors’ exposures. By reducing these positions we have taken one more step towards coming out of Defensive positioning towards more neutral style exposure.

House view



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