Chart of the Week: 2023 better than it feels for investors

Despite the significant market volatility witnessed around the time of Silicon Valley Bank’s collapse in mid-March, concern about the banking sector has not significantly dented wider asset prices. The year so far has been a positive one for investors, in stark contrast to 2022. Gold, a safe-haven asset, has been among the best performers this year. That has not been indicative of a general ‘risk-off’ mood across the first quarter, though, with positive returns recorded on all major asset classes except commodities — and US banks, of course. The story has been almost exactly the reverse of 2022, when a positive correlation between bonds and equity prices saw both decline as interest rate expectations were revised sharply upwards, while commodities benefited from the European energy crisis.  Should no further significant problems emerge in the financial sector, returns over the remainder of the year are likely to depend on whether and how inflation falls. The best outcome for risk assets would be a gradual fall in inflation, with limited further policy tightening and resilient economic activity. That seems a narrow path, and there are considerable downside risks from recessions or further aggressive central bank hiking.

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The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

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