Current stock market outlook – April 2023

April 6, 2023

'Focus on company results'

What is currently driving the financial markets?

In the still young year 2023, it has already been shown once again that things often turn out differently than you think. Who would have thought that a bank as rich in tradition as Credit Suisse would go under within a few days? And who would have thought that neither the banking supervisory authority nor the management of Silicon Valley Bank would consider it necessary to keep an eye on the interest rate risk and hedge it accordingly? These events have dominated market activity in recent weeks and sent shockwaves through the financial sector around the globe. Thanks to courageous intervention by governments, central banks and supervisory authorities, however, the situation calmed down relatively quickly, even though some regional banks in the USA in particular continue to be confronted with outflows of money. However, there are many clear indications that we will not have to expect a financial crisis like the one in 2008. The capital markets share this view and have stabilized accordingly.In the US, the ISM PMI – the purchasing managers' index for the manufacturing sector – recorded a further decline in March. A purchasing managers' index is generally a good leading indicator for the development of an economy's economic activity.
However, there is also a positive development with regard to the published price component, as this fell to 49.2 points in March, which indicates that purchase prices are no longer expected to rise. This fact gives hope for an easing on the inflation front in the USA. However, the recent announcement by Opec to cut production volumes did not exactly have a supportive effect in this respect.In Europe, the latest economic data did not send out such clear signals. On a positive note, some inflation indicators point to an easing on the inflation front.China continues to develop positively following the 're-opening', even if the latest economic data reported was below expectations. However, the potential for positive impetus for the global economy as a whole remains very high, provided that China performs well.

Where are we in the market cycle?

The stock markets have performed positively overall since the start of the year. The start has been successful and there is a feeling that the worst is over and optimism is growing.The pessimists argue that the banking crisis may not yet be over, inflation is still far too high and the upcoming publication of company results for the first quarter of 2023 will be negative. But we have been in choppy waters for some time now and are now at a possible positive turning point: positive surprises in corporate results and further positive signals regarding inflation.
This combination certainly offers the chance that spring could really have sprung on the markets and that the positive developments on the capital markets could prove to be sustainable. However, markets are extremely complex systems and monocausal explanations do not go far. Many other factors need to be taken into account, such as the development of lending by US regional banks.
What is certainly remarkable about the current situation is that the positive market developments have taken place in an environment in which the vast majority of market participants were pessimistic and therefore invested little in the markets. This large group of investors must now make a decision. Either to stay away from the equity market, or to underweight equities, or to jump on the bandwagon. The coming weeks are now likely to be decisive.

How do we position ourselves as an active asset manager?

In the spirit of 'investing instead of speculating', we continue to favor quality. We continue to feel well positioned with our focus. The diversified focus across various asset classes has proved very successful in recent months, particularly in our multi-asset solutions. Gold as a real asset is a stable component and we use currency hedging in our portfolios. In the fixed-income segment, we invest exclusively in high-quality bonds and also hedge the currency risk.

Point Capital Group
6. April 2023