In terms of what that means for equities, he said: “While the start of 2023 has seen markets reward the companies that are heavy uses of energy as they now expect energy prices to be lower, it is about rewarding the companies that benefit from lower inflation.
"But many of those companies are also those that are exposed to consumer spending and the wider economy, which is what I think investors will be worried about later this year. And in that climate, we are focused on the profitable technology companies out there, such as Microsoft. Those shares sold off last year not because of any fundamental change in the performance of the company, but because interest rates were rising. But in a world where rates and inflation are close to their peak, that goes away and the focus returns to the fundamentals of how those companies are performing."
He said that while many large technology companies, including Microsoft, have announced job cuts in recent weeks, this is partly a function of some firms over hiring during the pandemic, and didn't change the long-term growth trajectory in areas such as cloud computing.
Alex Funk, who runs the model portfolio service at Schroders Personal Wealth said his firm continued to expect the US to enter recession in the second half of this year.
His view is that the re-opening of the Chinese economy may benefit tourism sectors in countries close to China, rather than help the US economy.
With that in mind, he is relatively cautious on the outlook for US equities, as he believes they remain “expensive” and that US equities continue to price in a much more moderate economic outcome than do UK and European equities.
david.thorpe@ft.com
