Top Trade Ideas - 2023 H2 Special
After the year's first half ends, we look ahead and share our top ideas for the next six months.
Bitcoin has led the field in H1 returns, with notable gains for the NASDAQ 100, while the US Dollar Index is one of the few to lose value.
Looking ahead, we feel equity markets will continue higher while bonds will struggle.
We provide our favourite trade ideas from multiple asset classes for H2.
Reviewing the whirlwind of H1
The first half of 2023 is now in the books. We’ve pulled the below chart to easily summarise the performance of the major asset classes. This includes stocks, bonds, commodities, crypto and FX.
From just looking at the returns, some stories tell themselves, others don’t. For example, the continuation of rising interest rates globally has put pressure on bonds, gold and the US Dollar Index.
The US Agg Bond Index is only modestly up (even after a strong sell off last year). This comes as US data is driving a hawkish Fed. The DXY is actually the main loser out of our selection. Despite US rates rising, the dollar is further ahead of the curve as counterparts, including here in the UK and the Eurozone. As a result, this divergence in rate differentials has supported GBP/USD and EUR/USD to move higher.
The double-digit percentage returns from the S&P 500 and the Nasdaq 100 has diverged from the recession induced fears from some economists. Some are calling it a melt-up, while others are pointing to the gains in the Nasdaq 100 being driven by just a few mega caps.
Finally, spare a thought for Bitcoin, which recently reclaimed the $30k handle. We wouldn’t quite say that the general crypto space is back in vogue, but you can’t argue with an 84% return in six months. Volatility is still the name of the gain.
Our helicopter view for H2
At the top level, we feel the global economy will start to struggle as we get into the back end of the year, but don’t feel any recessions in the major economies (US, EU, UK) will be on the cards until mid 2024.
We feel for the rest of the summer and into autumn data points for the labour market, consumer spending and GDP will be ‘ok’. Granted, we feel that core inflation in the US, UK and EU will remain VERY sticky. This should help to validate bond traders that are pricing in further hikes in H2 from most of the G10 bloc.
Yet we don’t feel the impact of such hikes will trigger a stock market crash in H2. This thinking is further supported by the H1 performance, as investors have looked past such concerns in favour of other stories (such as AI).
Bringing this down to more specific ideas, we do feel that the major equity markets have further room to run higher. There will come a point where the risk/reward doesn’t make sense to enter new long trades (see below chart). Yet we don’t believe we’ve reached that point yet.
Unless the buying of bonds is for long-term yield, we don’t see much value there in H2. In FX, we feel continued USD weakness could be seen, with our favoured alternatives being EUR and JPY (when the tide finally turns!).
With gold at three month lows, we do see value in dipping toes in the water here, especially if our narrative for 2024 proves to be correct and gold spikes on safe haven demand.
When considering the past performance and our future outlook, here are some of our favourite trade ideas for H2.
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