Stock markets continued to edge higher, returning 1.5% as measured by ACWI. This was driven by strong corporate earnings which kept equity markets resilient despite increased concerns around persistent higher inflation driven by renewed escalations in the Middle East.
Japanese equities were the best performing region, driven on by very strong earnings for a number of companies and continuing corporate governance reforms.
The UK and US markets produced near identical returns over the quarter, with the FTSE moving higher based on gains for energy and commodity stocks which benefitted from the rise in oil and commodity prices. The US benefitted from a market move away from semiconductors and into software, as well as strong earnings and corporate guidance. Such has been the growth in US earnings that the S&P 500 now trades around 19 times forward earnings which is in line with its historic average.
As the US market benefitted from the move away from semiconductors, Asian and Emerging Markets equities both suffered from the rotation and were slightly negative over the quarter. Many of the worlds largest semiconductor manufacturers are located in these regions and the performance of a select few companies drives a good proportion of the index returns.
While equity markets largely shrugged off higher inflation expectations global bonds did not. Events in the Middle East led to higher oil prices and concern over the supply of oil from the region while. This led to a global sell off in bonds as markets began adjusting to a future with higher inflation expectations. Strong corporate earnings and relatively healthy underlying economic indicators which supported equity prices further pushed bond prices lower, as these are supportive of tighter policy. Markets expect all central banks to raise interest rates a number of times over the coming months.
Looking to the near future, we have the first Budget delivered by the new Chancellor in the UK as well as the US midterms in the next few weeks. As ever at Altor we do not try and predict what the result of these might mean for your investment portfolio and you should not try to do this either. To do so would be impossible and time and again history shows us that the best thing to do is to do nothing.