Investing & Performance | 7 August 2023

Monthly update: positive market momentum continues in july

Inflation provides a pleasant surprise that encourages investors, and we make some small but important changes to our positioning.


The mood of investors continued to lift this month with inflation easing on both sides of the Atlantic and employment numbers remaining robust.

It was a particularly good story in the influential US where inflation has dropped to 3% in the 12 months to June, down from 9% at the same time last year. This has reassured markets as the US central bank could reach peak interest rates soon, or may even have already done so.

Markets expect the US Federal Reserve to have potentially reached the end of its rate hiking cycle by now (with indicators showing only a 30% probability of one more interest rate rise in September), followed by rate cuts next year. Recent financial results from US banks were relatively robust and, given the resilience of the US economy, hopes are that a potential recession there might come later than expected.

The UK saw a larger than expected drop in inflation offering encouraging news for investors. Interest rate rises are expected to take longer to come down compared to the US though. Analysts currently expect rates to peak at around 5.75% after the Bank of England just raised the bank rate to 5.25%.

Sven Balzer, Head of Investment Strategy at Coutts, says: “In July we saw some improving structural signals as a broader range of sectors supported the rising equity trend. Rising commodity prices and improving emerging market equity momentum point to some economic optimism.”

He added: “There are still risks on the horizon, and we need to keep in mind that trading activity is often lower over the summer months which can cause larger price moves.”



At Coutts, we’ve made some changes within our investment positioning to reflect the improving market structure we saw in July, with an uptrend supported across a range of sectors and shares. While we continue to keep an eye on some of the more cautious economic indicators, we slightly increased our investment in stocks across our portfolios and funds, moving to a more neutral position on the asset class.

We sold some emerging market bonds and used the proceeds to buy US stocks. This was in light of falling inflation in the US, a potential pause on interest rate rises and solid US economic momentum, all of which should benefit equities in the medium term.

We also reduced our allocation to US government bonds and added to European government bonds as economic momentum in Europe continues to slow. We bought more UK corporate bonds as well, which in July discounted more rate hikes than might actually materialise. Besides attractive income they should also benefit somewhat from falling inflation in Britain, which we expect to continue.

Always remember, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.



The US earnings season is upon us once again. The financial sector was one of the first to release its results, with several banking giants posting better than expected profits after benefiting from higher interest rates in the second quarter.

The US market as a whole had a promising start, with 82% of companies beating expectations (at the time of reporting) – above the 70% long-term average. However, while a majority of companies have done better than expected, earnings are still predicted to fall by around 10% from last year.

Many eyes were on the big technology companies, which have been driving most of the recent S&P 500 returns, to see if their results matched their high valuations. Surprisingly, there were notable share price drops at several tech companies, despite them reporting sales and earnings ahead of expectations.

Howard Sparks, US Equity Research Analyst at Coutts, explains why.

“Rather than just looking at the price reaction on the day of results, we need to put this into context of recent performance,” he said. “Big tech companies have been performing incredibly strongly throughout the year. They were doing so well going into earnings season, that while some of them have seen a drop in value, this has only taken them back to where they were a few weeks ago.”


Catch up with all our latest views through our insight articles and weekly podcasts.

Coutts’ clients can find out more about what’s happening in the investment markets and how it impacts their investments by speaking to their private banker.


More insights