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Quarterly investment update – a volatile start to the year

The first few months of 2023 have proved something of a bumpy ride for markets with inflation, interest rates and some surprising events in the banking sector all playing a part. Charlie Buxton, our Head of Investment Management, takes a look at how markets have fared in the past few months, and what to expect next.

After the challenges of last year, those hoping for a more sanguine start to 2023 were in for a few surprises in the first quarter. Whilst equity and bond markets were largely positive, there was significant volatility, particularly during February and March.

Initially the focus remained on how central banks would guide the path for interest rates. In January, the numbers showed a meaningful year-on-year reduction in inflation and markets began to price in a more dovish response by the Federal Reserve. This view was quickly dismantled following February’s US Consumer Price Index data, which showed an unexpected level of stickiness in the inflation data. Meanwhile, economic data continued to beat expectations and fears grew that central banks would need to keep interest rates higher for longer.

April update

For more details read our quarterly investment report


The focus on inflation and the direction for interest rates changed again in March, but for reasons that very few saw coming. A liquidity mismatch in the treasury book at US bank Silicon Valley Bank, and the UBS takeover of arch-rival, Credit Suisse, reverberated through markets.

Despite some optimism that the end of tighter monetary policy across Western economies was approaching, challenges remain, and the outlook is far from certain. The problems in the banking sector only highlight some of the risks that have built up through over a decade’s worth of easy monetary policy, and there could yet be more surprises, with commercial property of some concern.

If inflation does prove more stubborn, then interest rates may suffer, which could have a destabilising effect on what has so far been a positive start to the year. OPEC’s recent decision on cutting oil production may be just one catalyst for this.

Yet it’s unlikely that monetary policy will remain as restrictive by the end of the year, which should lend support to equity markets, and particularly those sectors that bore the brunt of last year’s sell-off. Emerging markets continue to look attractively valued, particularly given that China is still only emerging from its zero-Covid approach. This should support global demand, particularly across the Eurozone, which has typically been a beneficiary from the Chinese consumer.