GSB Ireland

Market Update – August 2023

August saw the global equity markets pull back slightly after the prolific performance they have delivered thus far in 2023, with losses in the major indices across the US, UK, Europe, Japan and China.

This is not unexpected as historically, August has been shown to be one of the weaker months for equity market performance and even in a bull market run like we have seen so far this year, there will be months in which markets are flat or down.

Typically, we would expect to see some divergence between the world’s different equity markets, with certain areas bucking the trend of the month and posting positive performance; however, this was not the case in August, with performance across the globe showing limited evidence of geographic diversification.

As of August 29th, the S&P500 was down 1.99% and the NASDAQ down 2.80% in a rare poor month for US equities in 2023, whose performance has been a highlight for investors. There was a similar performance in the UK, with the FTSE100 down approximately 3% for the month to send the index negative on the year, making it an outlier when compared to other Western equity markets. European equities were also down, with the STOXX 50 index declining over 3% in the month as of the 30th. There was a similar story to be found in Asia, where the Chinese markets continued their sluggish 2023 with another month of negative returns with the SSE composite down over 4% for the month. Japan has led the way this year along with the US but also struggled in August as the Nikkei 225 was down over 2.5% as of August 30th, meaning there were minimal opportunities for equity investors in August.

The same lack of opportunities cannot be said for fixed-income, which, after a dismal 2022, is providing investors with yield levels not seen for over a decade, resulting in significant inflows into fixed-income and related ETFs this year even as interest rates continue to rise. July was the third straight month in which fixed-income witnessed net inflows, with investors particularly attracted to money-market options. Most inflows witnessed into ETFs this year have gone into fixed-income related ETFs with investors looking to try and capitalise on the elevated yields being offered as we come closer to peak interest rates. Due to the interest rate hikes we have witnessed this year, bond funds have not performed well as rising interest rates tend to lower the prices of bonds issued with lower coupon rates, but this has not dampened investors’ enthusiasm. This marks a remarkable shift in perception after the dismal performance of fixed-income in 2022, leaving many wondering if the traditional equity and bond portfolio recommended splits may be no longer suitable.

On the subject of interest rates, many of the major markets we keep an eye on did not have an interest decision made in August due to no scheduled meeting. The European Central Bank will report its next interest rate decision on September 14th, and the Federal Reserve will meet on September 20th to discuss whether to return to freezing rates. The Bank of England did make an interest decision and hiked rates for the 14th time in a row to 5.25%.

Inflation in the US rebounded slightly from 3% to 3.2% in July, although economists had forecasted a rise to 3.3%, meaning the rise was smaller than anticipated. If this trend continues when the figures for August are reported next month, it will increase the likelihood of further rate hikes from the Federal Reserve at their September meeting. The UK has struggled massively with inflation, but the figures reported in July will bring some encouragement for the Bank of England that their hikes are beginning to make an impact as inflation fell from 7.9% to 6.8% in line with consensus expectations but still ahead of comparable markets such as the Eurozone which saw inflation fall from 5.5% to 5.3%.

One area of the markets that has not been regularly discussed in our monthly market updates is cryptocurrency. Viewed by many as an un-investable asset class due to its extreme volatility and regulatory uncertainty, cryptocurrency has delivered strong returns in 2023. Bitcoin is up over 64% year-to-date, and Ethereum is up over 42% year-to-date with the overall cryptocurrency market capitalization posting significant gains in 2023 breaching over $1 trillion total market cap again as per CoinMarketCap.

Our August Blogs Focus

In this month’s newsletter, we cover a range of subjects, from The Power of Pension Planning, It’s time in the market, not timing the market! to Our relationship with Money. You can find these articles by clicking on the buttons below.

The Power of Pension Planning
It’s Time In The Market, Not Timing The Market!
Our Relationship With Money

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