M&G Investments: Liquidity tightening doing the heavy lifting from here?

by | May 3, 2023

April 2023 – As asset allocators, we are used to the market’s occasional reminder that it is more than ready to teach humility to any over-confident, prediction-laden investors. So, it is with a healthy lack of certainty that we confront the range of plausible routes down which the global economy and markets may now travel. Observing market price behaviour is a key starting point.

In the context of such a recent sharp reappraisal of the policy-rate path, it is interesting to note that the overall equity market continues to be relatively well behaved (substantially supported in the US by large cap tech which may be perceived as being somewhat ahead of the game). Furthermore, an almost too-composed response to events by financial markets at large is illustrated by our investor ‘narrative monitor’, which is showing no meaningful change in the level of stated concerns about recession (or inflation) in market news media, despite what can reasonably be considered a meaningful upset.

Figure 4: Narrative monitor: number of stories mentioning key words over the past five years