Stock market outlook – November 2022

November 4, 2022

“A ray of hope: Solid corporate results”

What moves the markets

October was dominated by companies reporting on their business performance in the third quarter. The majority of companies exceeded expectations in terms of both sales and profit development. In many cases, price increases were passed on to customers. There was particular excitement about the results from “Big Tech”: although most of the American tech giants were able to present good figures, they were unable to maintain the pace of recent years. On the other hand, the many reports on improvements in connection with supply chain disruptions were encouraging. A normalization in this respect is expected in the coming quarters.

And then there are the central banks… Their policies in connection with inflation continue to be a dominant theme on the markets. While the central banks in Australia and Canada, for example, have already raised interest rates less than expected out of consideration for the economy, the situation in the USA is still different. Jerome Powell, Chairman of the US Federal Reserve, is clearly trying to leave no doubt that he wants to lower inflation rates by raising interest rates further. Central bank policy is all about credibility, so Powell’s resolute communication should come as no surprise.

How did the markets react?

After two negative months characterized by high volatility, the stock markets developed positively again in October. The US dollar remained robust, while gold weakened slightly. Interest rates in the major economic areas continued to rise. Meanwhile, energy prices fell significantly. It is always interesting to take a look at international sea freight rates: These have been declining for some time now, which is an indicator of a cooling global economy.

What next?

The so-called “Mid Term Elections” are just around the corner in the USA. Elections will be held on November 8. In years of mid-term elections, stock markets tend to be more volatile on average and rise following the elections. However, what applies as a statistical average and can serve as a guide does not necessarily mean anything in individual cases… The current inflation rates will lead to further interest rate hikes by the central banks. For example, although inflation in the USA slowed slightly in September, the so-called “core rate”, which excludes energy and food costs, continued to rise. However, the pace of interest rate hikes is likely to be much less pronounced. This is positive for equities and bonds and corresponding price gains can be expected.

The key question for the financial markets is: when will the cycle of interest rate hikes reach its “peak”?

Furthermore, in the current environment characterized by many uncertainty factors, it is important to focus not only on short-term challenges, but also on long-term opportunities. The basis of the most successful investments is formed after price setbacks and therefore often in an environment characterized by volatility. Accordingly, the stock markets continue to offer very good opportunities for long-term investors.

How we position ourselves

In the current environment, a cautious investment policy remains appropriate. A defensive positioning, but with the necessary flexibility to adjust as soon as the interest rate situation changes. Active portfolio management is therefore essential. In addition, gold as a real asset is a cornerstone of our multi-asset strategies. On the equities side, the tactical part remains mainly defensive: The consumer goods and healthcare sectors are strongly represented. These stocks also have good opportunities in a tense market environment. The energy and financial sectors can continue to benefit and are also represented in our tactical section. As far as currencies are concerned, we continue to focus on the US dollar and the Swiss franc.

Point Capital Group
4. November 2022