Author: Tim Sharp
Researcher: Jack Williams
Published: March 8, 2023
XRT – SPDR Retail Sector XLE – SPDR Energy Sector
XLV – SPDR Healthcare Sector XLK – SPDR Technology Sector
February surprised investors as the uncertain macro backdrop and market volatility gave way for risk on assets to outperform once again, defying many market commentators and veteran investors’ theories that the recent rise in equity prices were down to little more than a bear market rally.
The graph above shows relative performance from the start of 2023 across sectors replicated via ETF’s. While XRT, the S&P’s retail sector focused ETF, gained traction early in the year, gains were parsed and overtaken by XRK, the S&P’s Technology sector focused ETF, which now sits at a YTD return of around 15% compared to Retail stocks, who have seen their 25% gain seen towards the end of January deteriorate to current levels representing roughly a 10% return on a year-to-date basis.
.STOXXE – Europe .SP500 – USA .N225 – Japan
.HSI – China EWU – United Kingdom
On a global front, the markets which saw huge inflows at the beginning of the year, such as China’s Hang Seng Index which was buoyed by the news of zero covid policies ending in the region, have now parred their gains compared to their global peers. Looking at year to date returns, European equities have outperformed peers with the EuroStoxx50 Index sitting at a near 10% year to date return.
China’s Hang Seng Index is the second-best performer, holding onto 5% returns as of this point in the year, although down dramatically from the over 15% return investors would have seen from the index from the start of the year to the end of January.
The MSCI U.K index saw healthy returns of nearly 3% in the month of February buoyed from rising flash PMI’s and weaker than expected inflation data. The UK’s main blue-chip index hit a fresh all time high in February reaching over 8000 points to many investors’ delights.
Investors are now wondering where performance will stem from moving forward through 2023, which is no doubt harder to ascertain given the numerous conflicting data points the market has been given in such a short period of time.
With inflation still running at elevated levels and government bonds yielding around 4% on the high end, investors still have an appetite for inflation beating returns which seems to explain growth sectors being the ones which have rallied the hardest since the start of the year. In what has been for many months now a risk off environment, it has been growth stocks as of recently that have outperformed, both on the upside in January and in February on the downside.
Whether this trend will continue remains to be seen, but investors are watching numerous data points in an attempt to pre-empt where the flow of capital will be directed towards next. Corporate earnings are being followed diligently, with analysts having cut their targets by as much as 3.4% in the first two months of the year, while companies so far have surprised to the upside with their earnings (on average +1.6%). Demonstrating that the true effects of central bank policies and slowing economies are yet to be felt. Corporate’s ability to weather these headwinds will dictate the strength and direction of their share price, until a clearer macroeconomic picture develops, giving investors renewed confidence.
Sources:
Data/Charts – Hottinger/Refinitv Data
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