SAA Monthly Investment Update: April 2023

Global shares rose in April, supported by some resilient economic data. Emerging markets underperformed developed market equities amid weakness in Chinese shares. In fixed income, all main credit markets generated positive returns.

US equities made limited gains in April as performance was influenced by gains from some of the index’s largest companies, including some of the large tech stocks with industrial and consumer discretionary stocks notably weaker. Investor optimism stemming from the Federal Reserve’s (Fed) anticipated moderation of monetary policy was tempered by the central bank flagging that economic growth is likely to soften. Uncertainty in the banking sector also continued. The collapse of First Republic looked unavoidable by the end of April, and its demise represented the largest casualty yet triggered by 2023’s simmering banking sector stress. Ultimately acquired in a deal between the US government and JP Morgan, investors appeared to take the news in their stride; US banks in the S&P 500 index advanced in aggregate in April. Even so, some apprehension lingers over smaller banks.

Throughout the month it remained the consensus view that the Fed will raise rates in its May meeting by a further 0.25 percentage points (the Fed did raise), but that the central bank will then pause its policy tightening phase. The view was backed by economic data that indicated growth is waning, the labor market is showing signs of weakening, while inflation has appeared more controlled in recent months.