The second quarter of the year was no less eventful than the first but markets were not quite as bleak. Both stock and bond markets digested the reality of higher and rising interest rates as globally inflation is more prevalent than many had anticipated.
The falls in bond markets, led by interest rate rises in the US, have pushed the valuations of some assets in most regions to much more attractive levels, which we will capitalise upon in our next changes to some portfolios. In stocks, overall levels of earnings remain strong in the US, UK and Europe, which is encouraging as potential recession draws near in those regions, and we have concentrated our equity exposure towards sectors that are less dependent on spending.
The landscape for consumers and companies has changed dramatically in the last year as higher costs have limited the discretionary spending of both. This does not look likely to reverse in the near term, especially not in the UK, which is dealing with higher prices across the board and will have to contend with even more increased costs in October as the energy price cap rises once again.
There is heightened uncertainty around the future leadership of the country as Boris Johnson has pledged to resign once a new candidate for leader of the Conservative party has been selected. We do not foresee this causing major changes to the outlook for the UK, but it could potentially be a catalyst for some measures to help with rising prices.
Our portfolios are well positioned to mitigate much of the impact of market swings and to capitalise on opportunities when they arise. Our latest Investment Market Review & Outlook document takes a look at some of these issues and outlines some more of our recent thoughts.