SPW MarketWatch: May 2023

  • Shunil Roy-Chaudhuri
  • 07 June 2023
  • 5 mins reading time
Source: FactSet, 7 June 2023. Figures are monthly total returns in local currencies for May 2023.

Uncertainty over US debt ceiling

At the start of June, the US Senate approved a deal between the White House and congressional Republicans over the US debt ceiling. But, throughout May, uncertainty had arisen over whether such an agreement could be secured. Even so, towards the end of the month it looked increasingly likely that an agreement would be achieved.

The debt ceiling represents the amount the US government is allowed to borrow. On 1 May, US Treasury secretary Janet Yellen wrote: ‘We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.’

In the event, the markets seemed to take the uncertainty in their stride. North American equities (shares) rose slightly in May, and global shares and global government bonds fell slightly.

Even so, we have a negative stance on US equities, as we do with global equities. In the US, we believe economic conditions could deteriorate due to rising interest rates from US central bank the Federal Reserve (Fed).

But we have a positive stance on US and global government bonds, as we expect interest rates to peak soon and government bond prices can often rise when interest rates fall. But we are neutral on global corporate bonds against the backdrop of a possible slowing global economy.

Gold’s glittering performance

Uncertainty over the US debt ceiling in May helped to drive up the gold price to near record levels (1), although it fell for the month as a whole. Gold is often considered a safe haven in times of uncertainty.

Other factors also played a part. First, some central banks in emerging markets bought the precious metal instead of the US dollar. This is because the US and its allies froze $300 billion of foreign exchange holdings denominated in dollars, euros and sterling as part of its sanctions against Russia after its invasion of Ukraine (2). Second, uncertainty following the invasion itself drove investors to seek sanctuary in the precious metal. Third, uncertainty hovered over regional US banks, in the wake of the Silicon Valley Bank (SVB) collapse in March.

Meanwhile, at Schroders Personal Wealth (SPW) we hold a positive stance on gold, as we think it could potentially rise in value if we move into a global economic slowdown.

Rise in Japanese shares

In mid-May, Japanese equities hit their highest level since Japan’s market bubble peaked at the end of 1989 (3). Investors attribute the recent high to the 2012 Japanese economic reforms, instigated by former prime minister Shinzo Abe, finally bearing fruit. These reforms led to changes including: increasing company engagement with shareholders; the appointment of independent external directors to company boards; and the sale of subsidiary businesses operating outside companies’ core business activities.

Some investors also believe Japan could benefit from Chinese economic growth but without China’s geopolitical risks, most notably over Taiwan. China views independent Taiwan as a breakaway province that should be under its control, but Taiwan considers itself distinct from China.

Despite Japan’s robust stock market performance, we currently have a neutral stance on Japanese equities. We believe a potential global economic slowdown could hamper their performance. We also have a neutral stance on Japanese government bonds, due to the Bank of Japan’s continued low interest rate policy. Interest rates have generally been rising elsewhere globally and bond prices often fall when interest rates go up.


(1), ‘US banking crisis pushes gold close to all-time high’, 5 May 2023.

(2), ‘The new gold boom: how long can it last?’, 24 May 2023.

(3) FactSet, MSCI Japan index, 5 June 2023.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.

In preparing this article we have used third-party sources which we believe to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents in relation to specific situations and particular circumstances.

The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.

Forecasts of future performance are not a reliable guide to actual results neither is past performance a guide to future returns.

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