The positive sentiment that prevailed at the end of 2022 continued into January, leading to rising stock prices and lower credit spreads, which contributed to very positive returns in bond funds. The strong start to the year can be attributed to optimism that a potential recession may not be too deep or may even be avoided, as well as increased hopes that central banks are approaching the peak of their interest rate hiking cycles.
Summary of market focus during the month:
Decreasing inflation in the USA The inflation rate continues to decline for the sixth consecutive month, raising hopes of fewer interest rate cuts from the Fed and the possibility of seeing the end of the interest rate hiking cycle in the near future. In Europe, some rate hikes are likely to occur.
Continued low unemployment Low unemployment bodes well for the economy’s relatively good performance going forward, and the economic downturn is hopefully more of a pause rather than a prolonged slump. However, low unemployment could negatively impact inflation if wage increases gain momentum, although ongoing collective bargaining negotiations indicate moderate wage increases. Several companies in Sweden and globally are announcing layoffs due to increased costs and uncertain demand, including Microsoft, Google, Facebook, and Amazon.
Company reports slightly better than expected so far The reports from companies that have released their results for the fourth quarter have generally been slightly better than expected. However, there are significant differences between industries, and almost all companies emphasize that future prospects are uncertain. Market focus has been on companies’ guidance and comments about the future. Overall, the near future does not seem too bleak, including real estate companies that experienced significant negativity in 2022.
Development of fixed income funds
The credit market has had a very strong start to the year with good performance in almost all segments. This can be explained by both falling interest rates and credit spreads, as well as the high yield at which most bonds are traded. The reports from companies that have released their results for the fourth quarter have generally been slightly better than expected. However, there are significant differences between industries, and almost all companies emphasize that future prospects are uncertain. So far, only a few real estate companies have reported, but those that have also recorded some write-downs on their property portfolios, primarily due to higher required returns. However, the write-downs are significantly lower than what was discounted by the equity and credit markets for much of 2022.
In the US and Europe, primary market activity was high as many companies wanted to take advantage of the strong sentiment to issue new bonds. However, activity in the Nordic market was lower, and the deals that were completed were done at attractive levels from an investor perspective. Simplicity participated, among others, in issuances by telecommunications companies British Telecom and Telecom Italia, as well as the French bank Societé Generale.
All funds had a good performance in January. Simplicity Likviditet increased by 0.48%, while Simplicity Företagsobligationer, Simplicity Global Corporate Bond, and Simplicity High Yield rose by 1.68%, 2.50%, and 2.30%, respectively.
Development of equity funds
It would be rather strange not to be optimistic now compared to a month ago. After all, there are three quite significant uncertainties that investors can breathe a sigh of relief about. The fact that US inflation came in below expectations has led the market to price in a 25-basis-point hike from the Fed in early February, and it is also pricing in rate cuts later in the year. However, there are factors complicating the outlook: US inflation has shifted from energy and products to services and food, inflation in Spain was higher than expected, and unemployment is still low. The low unemployment rate also bodes well for the economy’s relatively good performance going forward and suggests that the economic downturn will be more of a pause than a prolonged slump.
Fortunately, we have received some substance through the company reports. Much focus has been on companies’ guidance and comments about the future, and the outlook does not actually look too gloomy, although there are always exceptions. The major banks continue to perform well, and both SEB and Swedbank (Simplicity Norden and Simplicity Sverige) exceeded expectations due to high net interest income, high deposits, and trading income. Simplicity Norden’s holding, Nokia, is growing rapidly in India and with 5G, which is expected to continue next year as well, and Sandvik’s (also in Simplicity Sverige) report was well-received by analysts who see potential for improved margins going forward. In Simplicity Småbolag Sverige, mining companies SSAB and Boliden surged along with metal prices, while SSAB’s report indicated good prospects after China’s reopening and a more stable European market.
Simplicity Småbolag Global increased by 4.8%, and Simplicity Green Impact by a substantial 8.3%. Simplicity Norden ended the month up 3.2% in good company with Simplicity Sverige and Simplicity Småbolag Sverige, which rose by 6.5% and 6.1%, respectively. Simplicity Fastigheter had the highest increase of 10.8%.Tillbaka till Nyheter