SSFS Q2 Investment Update

SSFS Q2 Investment Update


General Market overview

In Quarter 2, we continued to experience market turbulence in the reaction of global economies to inflation and rising interest rates. This has had a knock-on effect on the growth-value bias, as growth stocks led in Quarter 2 whilst their value counterparts lagged. Indices have continued to outperform funds, as investment managers are still trying to β€˜dampen’ volatility and protect against downside risk.

SSFS Q2 Market Commentary

Inflation in the UK

Inflation in the UK, measured by the Consumer Price Index (CPI), has dropped from 11.1% in October 2022, to 7.9% in June 2023. Current trends predict it will fall even further. This disinflation was heavily influenced by a significant decrease in fuel prices over a 12-month period (In the 12 months to June 2023, crude oil prices fell by 41.1%, compared to a fall of 33.2% in the 12 months to May 2023). This marks the lowest crude oil price since May 2020.

Concerns within developed countries that we will be entering a major recession are ever present, however due to continued disinflation, the impact a major recession would have on global markets is decreasing. There is still mass uncertainty as to whether the Bank of England can curb this high and sustained rate of inflation. However, it appears to be gradually easing off on its own in the hope of a β€˜soft landing’; a slowdown in economic growth, avoiding recession.

Moderation of inflation has occurred at the slowest pace in the past two years, certainly keeping everyone conscious of possible changes within the market.

US Growth Rally

In the US, investors are slowly gaining more confidence, which has been demonstrated by their inflation rates decreasing from 4% in May 2023 to 3% in June 2023. Additionally, interest rates in the US are levelling out, with the Fed keeping interest rates at 5.25%. This has allowed them time to assess the economic climate’s reaction to their prior monetary policy actions, whilst maintaining a tight labour market.

In these conditions, growth markets can flourish, which has led to growth rally we are currently seeing. You may have heard of the β€˜magnificent 7’, which are the seven US growth companies currently leading the market (by quite some way!) in terms of performance. These are typical growth companies, which have thrived under the new found consumer confidence.

UK and the Eurozone Β 

In contrast, the European Central Bank (ECB) and Bank of England are continuing to increase interest rates. The UK’s Monetary Policy Committee (MPC) had a meeting on 21st June 2023, where they increased the Bank of England base rate by a further 0.50% to 5% (from 4.50% in May 2023). This has caused mortgage rates to rise as well.

Turning to Europe, the Eurozone decided to raise their three main interest rates to 4%, 4.25% and 3.5% from 21 June 2023. These now match the highest rates recorded since the launch of the Euro in 1999, alongside record lows in employment. It would appear the ECB’s monetary policy management has paid off as they have noticed a return to economic growth during Quarter 2. Inflation descended to 5.50% in June 2023, almost halving from its high of 10.6% in October 2022.

Strategic Solutions – our view

This is the second consecutive quarter that growth orientated equities have led the market in terms of performance. Most notably, the US β€˜magnificent 7’ growth companies have accounted for the majority of the performance achieved in the S&P 500.

Although the US inflation easement may be attributable to the recent growth rally, the Eurozone and UK inflation environment is still somewhat behind the US. The Fed’s aggressive interest rate hikes have tamed US inflation significantly, whilst the β€˜plucky’ UK MPC are persevering with smaller, incremental interest rate rises, but are struggling to dampen consumer spending and discourage additional investment into businesses/markets. Due to these opposing monetary policy strategies, the potential for a β€˜soft landing’ is perceived to be better in some places than others.

Looking forward to the rest of 2023, uncertainty in financial markets remains unpredictable across the globe. As such, many fund managers are taking up defensive positions within their portfolios, waiting in anticipation for the markets to indicate a favourable stock return, and/or valuations for their respective levels of risk. Whilst some of our offerings have thrived in the favourable growth environment, we endeavour to remain diversified to maximise sustainable long-term risk adjusted returns. If you have any issues or would like to understand how your portfolio is currently reacting to market stimulus, please do not hesitate to contact your adviser.



  • 3 main ECB interest rates:
    • The interest rate for refinancing
    • Their depositing interest rate
    • Their marginal lending interest rate
  • Consumer Price Index (CPI) – A measure of inflation that tracks the change in prices of a representative basket of goods and services, such as housing, food and recreational costs.
  • Disinflation – A slowdown in the rate of inflation whereby the prices of goods and services are still increasing, but at a slower rate.
  • Downside risk – is the financial risk associated with how magnified losses are in declining markets.
  • Growth-value bias Growth and value are two styles in stock investing. Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.
  • Indices – is a group of shares that are used to give an indication of a sector, exchange or economy.
  • S&P 500 – An index that tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
  • The Fed – is the central banking system that dictates interest rates in the United States
  • Tight labour market – economic climate whereby job vacancies are in abundance during times of low unemployment.
  • VolatilityA statistical measure showing the degree of variation an assets price has from its average value. A highly volatile asset would have more frequent large changes in price than low volatility assets, where its price would rarely deviate as much.

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