WEEKLY E-MAIL

26 Jun 2023

US EQUITIES – A TALE OF TWO FINANCIAL YEARS

By Sam Eley

US equities have shaken off high inflation, debt ceiling concerns and a slowing economy to provide a strong bounce back in the current financial year 2023. The MSCI World Net Return Index for international shares is +18.75% for the current financial year to 31 May 2023, with the majority of this return driven by the US given it makes up 68.92% of the index.

The Top 10 holdings of the MSCI World Index are all American companies:

The rally is largely supported by the sector mix of the US market. The US has more exposure to industries like IT, Healthcare and Communication Services, whose earnings are likely to be more resilient during an economic downturn given their more defensive nature, albeit they are more growth-oriented businesses. The US has less exposure to industries like Industrials, Financials and Materials, which are more sensitive to broader economic conditions.

US equities have also rallied in recent weeks due to enthusiasm around Artificial Intelligence, which has boosted the share prices of some of the big technology companies such as Microsoft, Alphabet and Meta Platforms. The mega-cap technology companies were hit hard during Financial Year 2022 (FY22) following a multi-year run of strong returns during the peak of the COVID years. FY22 saw the NASDAQ-100 Technology Index fall 27.78% once the depth of the inflation problem became clear, but following the recent rally in technology companies, has returned 25.12% so far during FY23. The tech index remains below its previous highs, but the rally has been significant.

While the recovery in US shares has been encouraging, we continue to invest in diversified portfolios that are invested across different countries, industries and asset classes. A blend of these assets helps to reduce risk and volatility in a portfolio, as well as provide different return traits amongst the asset classes. While US equities do not provide much in the way of dividends and income (and instead predominantly focus on reinvesting profits into the business to grow the share price over time), complimenting this with Australian equities, property, fixed interest and alternative assets allows us to ensure there is a variety of ways investors can earn returns over the long haul.

Sam Eley
Senior Financial Planner
Authorised Representative No. 1234685

If you have any questions or comments, please email me at sam@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution.  The information here is of a generic nature, and does not take into account your investment objectives or financial needs.  No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

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