After a challenging period last year for growth stocks such as US technology due to rising interest rates, this area of the market has outperformed so far this year, whilst commodities have been the worst performing asset class after outperforming in 2022. Equity market performance this year has also been supported by the view that US inflation might moderate significantly without the need for a rise in unemployment.

Positive sentiment around artificial intelligence (AI), sparked by OpenAI’s conversational chatbot, ChatGPT, has led to a sharp rally in the ‘Big Tech’ stocks including Apple, Microsoft, Google parent Alphabet, Amazon and Netflix. The rally has broadened out over the past month, the beneficiaries include semiconductors, cruise lines, airlines, automakers, homebuilders and hardware companies. An increase in earnings expectations resulted in strong gains for Nvidia and Meta this year.

Japan has been the strongest performing equity market this year supported by foreign investment, low interest rates and yen weakness as many companies earn a significant proportion of their profits overseas. The US equity market has also generated strong returns due its significant exposure to large tech stocks and European stocks have generated double digit returns year to date. UK equities have delivered more muted returns this year given the composition of the UK market and the effects of a stronger sterling on UK listed companies’ global earnings. Emerging market equities have been impacted by fading optimism over China after its initial reopening-driven rally.

Global bonds are yet to recover meaningfully from a challenging 2022, and UK government bonds have fallen further this year. High yield credit and Italian government bonds have been the top performing sectors within fixed interest this year, both benefiting from a fall in yields and economic resilience, while UK gilts were impacted by ongoing inflation headwinds with markets now expecting interest rates to reach 6% next year and remain higher for longer than initially expected.

US inflation has declined sharply due to favourable base effects from oil prices, which peaked last June and have come down significantly since. Core inflation remains sticky, and the slowdown in house price and rental growth is yet to reflect in the numbers. The economy continues to be supported by positive retail sales however the risks include a decline in business investment and weak corporate loan demand.

The UK economy continues to struggle due to sluggish growth, rising inflation and a tight labour market. Unemployment remains low across developed markets and the UK has experienced the strongest wage growth over the past twelve months which is reflected in the UK’s elevated inflation data. As a result, UK interest rates were raised by 0.5% in June with the Bank of England’s (BoE) base rate now standing at 5%. The impact of higher interest rates will continue to filter through to households as more fixed-rate mortgages come to an end and impact on companies needing to refinance debt or raise capital. A hawkish monetary policy stance by the BoE should continue to support the sterling. Large-cap UK equities offer good value but the current environment is a headwind given the market’s relatively large exposure to health, financials and consumer staples sectors and small exposure to technology firms.

In Europe, the service sector remained in positive territory while the outlook for the manufacturing sector is negative and corporate loan demand is weakening. With core inflation still well above the target due to the effects of last year’s large increases in oil and gas prices, the European Central Bank raised interest rates to 3.5% in June and further hikes may be necessary to bring inflation down. Consumers remain resilient despite higher interest rates. This is also supported by the fact that mortgages in Europe and the US tend to be fixed for much longer than they are in the UK.

The Chinese economy is decelerating after a strong first quarter, and monetary policy is likely to remain accommodative given low inflation. The consumer remains cautious and the property market recovery has been slow. The Chinese yuan is unlikely to strengthen until we see signs that the US Federal Reserve Bank and other developed central banks are close to cutting interest rates. Concerns around the economy have been a headwind for the Chinese equity market and broader emerging market equity indices have underperformed developed markets so far this year. This is also despite the weaker US Dollar which is usually a trigger for emerging market equities to outperform.

Markets have been supported by better-than-expected earnings and optimistic economic expectations however the economic impact of rising interest rates is yet to become more apparent and central banks continue to monitor inflation closely.


Market Performance 2023 Year to Date
FTSE All-Share +2.61%
FTSE World ex-UK +9.12%
FTSE Actuaries UK Conventional Gilts All Stocks -3.49%
FTSE Actuaries UK Index-Linked All Stocks -2.59%


 Total returns in GBP to 30/06/2023


Key Rates  
Bank of England Base Rate 5.00%
Inflation (Retail Price Index/Consumer Price Index)* 11.30%/8.70%


*May 2023

Source of data: FE Analytics,,

The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.