SUMMARY
The US Treasury has issued a lot more debt, with yields rising. We believe that potential opportunities exist for fixed income portfolios.
The US bond market has reacted to increased Treasury borrowing with higher rates; however, the conditions have not yet disrupted credit markets or prompted a flight from bank deposits, as feared. The stability of markets and banks is partly attributed to the offset of the rise in US Treasury borrowing by reduced Federal Reserve borrowing.
Equity markets have encountered some resistance following the strong rally in the first half of 2023, but potential opportunities remain. The Nasdaq is still 15% below its late-2021 peak, even after a substantial 30% rally this year. Global markets appear to have de-risked after significant declines in 2022, with potentially cheaper regional markets balancing out a pricier US market. Despite high valuations for large-cap US stocks and some investors remaining on the sidelines, global equity positions have so far seen a 12% return in the first half of the year.
Over the second half of 2023 we expect a range of potential equity opportunities to unfold. We discuss the broad Energy industry inside.
