June 2023 capital markets outlook and risk metrics

June 2023

  • Although some global inflation indicators continued to improve in May, central banks signaled their readiness to continue to hike interest rates, which weighed on bond markets and economic growth expectations.
  •  Confidence in China’s economic reopening waned, as foreign investors shed their positions in Chinese equities. The MSCI China index fell 8.4% in May and is down 14.8% on a one-year annualized basis.
  • The MSCI Emerging Market index outperformed Chinese stock markets and developed non-US equity markets.
  • After a strong start to the year, developed non-US markets printed negative returns in May.
  • The US equity market had mixed results in May. Mega cap and large cap technology companies benefited from an AI-fueled burst of investor enthusiasm while small and mid-cap stocks posted negative returns.
  • Investors continued to favor growth stocks with the Russell 1000 Growth index posting a 20.8% return year-to-date while value stocks struggled with negative returns.
  • Deteriorating growth expectations weighed on commodity prices in May, with natural resource stocks suffering a steep sell-off. Infrastructure and real estate equities decline during the month as well.
  • Most fixed income markets posted negative returns in May with the notable exception of short-dated T-bills as uncertainty regarding future policy rates and inflation dampened enthusiasm for bonds.
  • The Fed’s statement in May offered some potential for a pause in the rate-hiking cycle, but subsequent economic data appear to indicate continued economic demand and tight labor markets that could indicate the need for still higher rates in the future.
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