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Quarter in Review Q2 2023

Dynamic Share To Cash Strategy

Key themes

Economic data in Q2 continued to suggest that inflation remains sticky amid a divergence between a resilient US economy and elsewhere.

The eurozone entered a technical recession in Q1, and China’s economic data has been lacklustre since the country’s reopening from Covid restrictions in December 2022.

Despite this, global asset markets continued to rally as signs of a recession were yet to show up in US economic data, while positive sentiment around artificial intelligence (AI) and its potential to boost corporate profit margins supported some technology stocks.

Markets snapshot

Global equities, as represented by the MSCI All Country World Index (ACWI) rose by 6.7% (5.9% in euro terms) in Q2.

The theme of artificial intelligence (AI) received a boost from chipmaker Nvidia in May as it reported better-than-expected Q1 results. As a result, the company's share price rose by 52% in Q2 – bringing the year-to-date gain to 189.5% – and its market cap rose above $1 trillion during the quarter. The announcements were viewed as indicative of AI gaining traction, and stocks related to this theme benefited, with the NASDAQ index up by 12.8% over the period.

Large caps outperformed amid the ongoing market leadership of the US mega cap stocks, as concerns around the impact of the banking crisis on growth and credit creation weighed on small caps.

Emerging market equities rose by 1.8% (0.6% in euros), well below the performance of developed markets.

Fixed income markets traded in a narrow range during Q2, which was reflected in lower bond volatility: at end-June, the ICE BofA MOVE index was at its lowest level since February.

Expectations of higher rates in the UK pushed gilt yields higher, with the ICE BofA UK Gilt Index down by 6.0% in Q2.

Meanwhile, the ICE BofA 5+ Year Euro Government bond index was up by 0.4% over the period.