As central banks around the world joined a global rush to raise interest rates, we share how we’re balancing the risk/return profile of the Focus List as uncertainty around the risk of recession continues to bite.

As household spending begins to normalise over the next 12 months, we look at the outlook for earnings in a post-COVID world.

May was a tricky time to be an Australian investor with the market falling 3% over the month, underperforming the MSCI World ex Australia (-1.1%). We look at the market’s key concerns over the month and explain the changes we’ve made to the Focus List in June as a result.

Volatility in the markets causes investors to seek ways to mitigate that risk. Including quality or defensive stocks in a portfolio may be a good solution, with the return and volatility of quality defensives being historically superior to those of broader equities during choppy market conditions.

With already tight oil and gas markets getting tighter as a result of the Russia/Ukraine crisis, some lost production now looks irreversible, adding another significant tailwind to the energy outlook over the next few years.

Our outlook for the banks remains positive. As we enter a period of RBA rate hikes, margin pressure will likely ease, driving earnings growth over the medium-term. However, risks remain for Aussie banks as rates rise. We delve into the 1H22 results and outline our reasoning for an overweight to the banks.

Last week the RBA hiked rates for the first time in 12 years, raising the cash rate from an all-time low of 0.1% to 0.35%. Several more rate hikes are likely in the next 12 months. Currently, we believe that RBA rate hikes will not be a significant headwind for equities. However, a rate hike environment would likely result in prolonged volatility until the market gets more clarity about the end game.

Since December, risk aversion in equity markets has shifted as inflationary pressures and higher bond yields have placed downside pressure on equity valuations. However, over the last month defensives have started to outperform the market, from healthcare and consumer staples to utilities.