Newsletter: Mid-Year Market Summary

As we are now into the second half of 2023, it’s a relevant time to provide an update on investment market conditions and comment on the key factors regarding your investment performance.

In 2023, investors have had a better year compared to 2022, with many markets delivering positive returns. Areas that performed poorly in 2022, such as the US stock market, have seen a significant reversal recouping some losses.

We have experienced both positive and negative periods for investments in 2023 with the start of the year providing a welcome recovery from the lows of late 2022. However, this positivity faded with inflation remaining higher than expected. As we have started to see inflation reduce in most developed economies, we have again seen an upward trend in investment values over the past month. We would hope and expect this to continue as the year progresses.

Certain themes do however continue to impact markets, necessitating caution and awareness of the risks.

Key Themes

1. Inflation & Interest Rates:

Inflation remains high, and central banks are gradually raising interest rates to address it. The UK’s latest inflation rate came in at 7.9% in June, this was down from 8.7% in May and down from the peak of 11.1% in October 2022. Whilst inflation is reducing, which is welcome news, it still remains persistent.

We expect inflation to continue to fall over the course of this year but as we have seen so far this year the amount of this reduction is difficult to predict. Energy prices are falling, for example, which may lead to a decline in headline inflation.

Due to the rates of inflation experienced, the Bank of England has continued to raise interest rates with 9 base rate rises since June 2022. The current base rate is 5% and we expect to see further rises this year until the Bank of England can see interest rates having their desired effect of reducing inflation.  Europe and the US have also increased interest rates due to persistently high inflation.

This current position creates a very difficult position for borrowers, especially those needing to re-mortgage. Conversely, those with cash savings are now seeing the best rates of interest for their savings since the financial crisis of 2008/09.

Our portfolios include inflation-linked bonds and exposure to the energy sector as hedges against continued high inflation.

2. Recessionary Risks:

High inflation and rising interest rates are bad for the economy and create uncertainty of the future economic position. This in turn has created volatility and falls in investment values.

The International Monetary Fund (IMF) has lowered global growth forecasts due to the current economic position. However, while recessionary risks have increased, most economies are still expected to avoid a recession in 2023.

If a recession were to happen, we tend to find that following such periods inflation pressures ease, paving the way for substantial interest rate cuts across developed and emerging market economies.

Within portfolios we recommend, by holding defensive equities, favouring consumer staples and healthcare, this helps to navigate potential recessionary conditions.

3. Financial Sector:

The financial sector faced challenges earlier this year following the collapse of two regional US banks and the rescue of Credit Suisse. While financial companies are still impacted, there are measures in place to prevent further contagion. Despite the volatility, global financials remain a favoured asset class with strong potential based on valuation-driven analysis.

Staying Invested

At times of uncertainty, staying invested is vital to achieving long-term investment goals. Selling investments during uncertain periods is likely to be detrimental to your financial objectives.

Holding large amounts of cash may seem appealing in a rising rate environment, but interest rates still remain below inflation. From an investment perspective, the majority of global markets are still beating cash on a one, three, and five-year basis according to Morningstar data to 20th June.

Investing involves periods of setbacks and navigating them requires a balance between conviction and diversification. We have always recommended holding a robust, diversified portfolio and this is especially important at the moment given the crosscurrents and longer-term opportunities that will arise.

To highlight an example of the benefits of staying invested, the graph below highlights the journey of an average medium-risk investment over the past 23 years. This period covers three other significant market events including the impact of 9/11, the financial crisis of 2008/09 and Covid in 2020. As you will see, there has been a period of time before investments have recovered their value after each fall, but they have always recovered to result in a higher investment value. This emphasises the importance of remaining invested so as not to miss out on the recovery in value of your investments.

To illustrate this point further, there is a large amount of evidence on the benefits of staying invested, and particularly the downside of missing even a small number of the strongest performing days in the market and the impact this can have on investment returns. The following table illustrates this with the performance of the FTSE 100.

Time in the market is more important than timing the market


While 2023 has been more favourable for investors than the previous year, risks and uncertainties persist in the market.

As your financial advisers, we are dedicated to navigating these challenging market conditions with prudence and diligence. Our investment strategy remains focused on your long-term financial goals, risk tolerance, and individual financial plans. Diversification continues to be a core principle of our investment approach, allowing us to mitigate risks and capture potential opportunities.

If you have any questions or need further information, please don’t hesitate to contact our team. We appreciate your trust in us as your financial planning firm.

Best regards,
Jonathan McDowall

Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Past performance is not indicative of future results and no representation is made that results where stated, will be replicated. Investment values rise and fall and the value of them is not guaranteed. On encashment, you may not get back the amount invested.

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