Quilter Cheviot|Weekly Comment

Equities rally to end strong first half of the year

Our weekly market overview from Quilter Cheviot

By Alan McIntosh, Chief Investment Strategist

Stock markets ended Friday on the front foot with the MSCI All Country World Index rising 2% on the week to take June’s gains to 5.8% and close out the first half of the year with a 14.3% return. Bond yields rose on the week as markets priced in more hawkish central banks going forward and gilts ended a quite negative quarter down around 6% in price terms.

Once more it was US stocks at the forefront of the move higher with benchmarks rallying into the long weekend and posting a weekly return of 2.4%. Indices with a greater tech weighting were up 2.2% on the week taking year-to-date returns to more than 32%. Apple reached a new milestone on Friday’s close, becoming the first publicly traded company to have a market capitalisation in excess of US$3tn.

Good economic data in the form of durable goods orders, weekly jobless claims and new homes sales suggested that activity is holding up better than expected, while the University of Michigan consumer sentiment index hit a four-month high. The final US GDP reading for the first quarter also came in above consensus forecast, showing 2.0% growth in annual terms. 

There was more positive news on the inflation front as the personal consumption expenditures (PCE) price index showed a 3.8% increase in the year to May, the lowest level in over two years. The core version, believed to be one of the Federal Reserve’s favourite gauges of inflation, dipped to 4.6%.

Inflation data from the Eurozone also came in better than expected with the consumer price index (CPI) falling to 5.5% year-on-year, its lowest level since the February 2022 release. Stocks on the continent outperformed on the week, rising 2.3%, but ended a little behind global peers for the month of June, up 2.7%, taking 2023 returns to 12.7%.

There has been less encouraging news on inflation lately from the UK, causing bond yields to rise relatively faster. The 10-year gilt yield increased six basis points last week to 4.48%, up 20 basis points in June and 72 basis points higher for the first half of the year. UK stocks continued to lag, with benchmarks gaining 0.9% on the week and 1.4% for the month. This leaves year-to-date returns at 3.1%. The pound ended June little changed on the week against the US dollar at 1.27, up around 5% for 2023.

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