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Global Equity Performance Global equity markets experienced a positive month in July, with returns of 3.5%, contributing to a year-to-date gain of 17.5%. The market’s upward trajectory was supported by key data, mainly from the USA, which raised the likelihood of a soft landing scenario for the economy, alleviating fears of a recession.
US Economy and Stimulus Plans The US economy demonstrated resilience during the period, with GDP growth surprising to the upside. However, the growth rate remains below its trend level. Encouragingly, demand indicators also showed positive surprises. Notably, the strength of the US economy, despite significant interest rate increases, can be attributed to the stimulus plans announced by the Government, including the IRA, Chips Act, and Infrastructure bill. These initiatives are expected to have a positive impact on various segments of the economy.
Europe’s Weak Data and Tightening Credit Conditions In contrast to the positive developments in the USA, Europe faced challenges as data remained weak. The ECB continued to tighten credit conditions, and the PMI Index in July recorded a decline to 48.9, indicative of a growth slowdown. The latest ECB Bank Lending Survey revealed a decrease in loan demand by banks in the second quarter, reaching the lowest level recorded since 2003. While the decline in mortgage loan demand has slowed, it still adds to concerns about the overall economic recovery in the region.
Outlook for the Second Half of 2023 As we look ahead to the second half of 2023, there are several key factors to monitor closely. Firstly, we need to assess the speed and effects of the transmission of restrictive monetary policies on global financial conditions. Thus far, there are positive signs compared to previous forecasts, but the situation requires continuous observation.
Secondly, the weakness in the European economy could potentially impact or slow down the recovery of global production. Given the still-fragile macro environment, it is essential to keep an eye on how the situation unfolds.
Investment Strategy Considering the uncertainty in the market and the potential impact of monetary policy changes, we maintain a neutral positioning on equities. Our preference lies with quality stocks over cyclicals, as they tend to be more resilient during economic uncertainties. We believe this approach is well-suited to navigate the current market conditions and protect the interests of our investors.
Please feel free to contact us for further discussions on specific investment ideas that we are developing for our clients.
Disclaimer: This report is for informational purposes only and should not be considered as financial advice. Past performance is not indicative of future results. Investors are advised to conduct their research and consult with a professional financial advisor before making any investment decisions.
Best wishes
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Federico Polese
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