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June’s investment market commentary

July 17th, 2023.

Despite many challenges and ongoing uncertainties, Q2 saw global markets post yet another set of strong equity returns after what was an already solid start to the year, Simon Watts explains.

May was a slightly bizarre month, with markets having one eye on the US debt ceiling ‘pantomime’ and the other on anything related to artificial intelligence (AI). The fast-approaching date at which the US would default on its debt, signalled to be early June, caused the usual last-minute brinkmanship and related market volatility. Thankfully, an agreement was reached at the end of month that enabled the debt limit to be increased. While this was broadly expected, surprises can happen especially when emotional humans are involved. Interestingly, market attention during May was also focused on something completely unhuman, this being the frenzied search for stocks benefiting from AI technology, given the recent hype around tools such as ChatGPT (an AI chatbot). The moves propelled technology stocks such as Nvidia (which makes processors and software for this area) into a select group of companies worth over US$1 trillion, pushed it to even more stretched valuations (P/E 193), and extended the rally in what has been a very narrow number of mega cap stocks this year. In fact, without the 10 biggest names in the S&P500 which is up circa +10% year to date, the return of this index would so-far have been roughly flat!

Global equity markets (-0.3%) were broadly unchanged, in local currency terms, despite the hysteria regarding AI impacting certain stocks over the month. Regionally, the prospect of currency appreciation, as a result of the potential for tighter monetary policy by the Bank of Japan’s new governor, has increased foreign buying and helped stocks in Japan (+4.5%) generate some of the strongest returns recently. Apart from Japan, the US (+0.6%) was the only other major market that managed to generate a positive return during May, aided by its relatively high weight to the information technology sector. In comparison, Europe ex UK (-3.0%) and UK (-5.2%) lagged the most, reflecting in part their limited exposure to AI related stocks. In terms of style, growth stocks (+2.0%) significantly outperformed value / cyclical (-4.2%) orientated equities. This pattern was also reflected in the sector performance, with information technology (+8.2%), and communication services (+2.2%) by far the best performing areas. At the other end of the spectrum, energy (-9.0%), materials (-7.0%) and consumer staples (-6.3%) sectors trailed the most.

Within fixed income markets, returns were mostly negative due to the general expectation that central banks would need to tighten policy further. Looking at the detail, while global government bond prices fell (-0.4%) only marginally, there was a lot of disparity across markets, for example, European government bonds rallied abruptly towards the end of the month due to lower-than-expected inflation data. In comparison, US Treasuries (-1.1%) and UK Gilts (-3.4%) declined sharply due to signs that inflation may take longer to fall (remain sticky). Global investment grade credit (-0.9%) generated a negative return over the month as spreads widened, and at the risker end of the credit spectrum the same was true with global emerging market debt (-0.9%) and global high yield (-0.6%) also falling during May.

In terms of real assets, the more interest rate sensitive property and infrastructure markets significantly underperformed equities over the month with the global listed infrastructure (-5.2%) and global REITs index (-4.7%) both generating negative returns. Commodities (-5.6%) also fell sharply, however, there was significant divergence across the different markets. Crude oil (-10.7%) and industrial metals (-8.4%) were the weakest areas, due mainly to concerns about economic activity, especially with weaker than expected data coming out of China. Agriculture (-4.2%) also fell due to declining wheat and soybean prices. Finally, gold (-1.3%) was also negative, due to the headwinds of rising bond yields and a stronger US dollar over the month.

FTSE 100 7446.14 531.53
DJ Ind. Average 32908.27 34407.6
S&P Composite 4179.83 4450.38
Nasdaq 100 14254.09 15179.21
Nikkei 30887.88 33189.04
£/$ 1.2441 1.2703
€/£ 0.85921 0.85927
€/$ 1.0689 1.0909
£ Base Rate 4.50 5.00
Brent Crude 72.6 75.41
Gold 1962.73 1919.35

This month’s values quoted as at 30/06/2023. The above values are sourced from Bloomberg and are quoted in the relevant currency.


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Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.