Stock market outlook 01/2024: The year of interest rate cuts

January 10, 2024

What has been the focus in recent weeks

In 2023, the global economy defied the recession, although Europe reacted more sensitively to the high interest rates. The past investment year ended well overall, even though from a Swiss perspective the very strong Swiss franc weighed on returns from investments in foreign currencies. The sharp increase in market breadth towards the end of the year was also noteworthy. This means that the positive market trend was driven by a large number of securities and not just a few individual ones.

Our scenario for 2023 envisaged an easing of the interest rate situation over the course of the year, which should lead to a recovery on the equity markets. This was confirmed towards the end of the year.

Our investment solutions and positioning

Our multi-asset strategies made further gains at the end of the year and continued the upward trend from November. In addition to our slightly cyclical focus in the form of investments in small-capitalized companies and European industrial stocks, our exposure to Swiss real estate also made a significant contribution to the overall result. Once again, however, the Swiss franc strengthened, which reduced the result in December. We are currently maintaining our positioning unchanged, but are prepared to further increase the proportion of cyclical investments as soon as the corresponding signals are available.

With regard to our Global Equity Trends equity strategy, we can look back on a difficult year. At sector level, just five of the eleven sectors ended the year with a positive return. This shows the lack of market breadth that we saw for large parts of last year. In December, the previous winners, such as technology and communications, at least took a breather. Nevertheless, we continue to see the strongest long-term upward trends in these two sectors, followed by cyclical consumer goods. The losers last year were the utilities, energy and consumer staples sectors – which are not represented in our trend strategy. At the turn of the year, we sold stocks with low volatility – the so-called minimum volatility factor – and added global real estate stocks to the portfolio instead.

In December, we saw a similar picture in our Swiss Equity Selection equity strategy as in November. Cyclical stocks such as Sika, Straumann and Geberit continued to show strength and thus once again made a considerable contribution to the overall result. Meanwhile, our Swiss heavyweights were at the bottom of the league, although Novartis made a brilliant start to the new year 2024. Over the year as a whole, our investments in UBS, Logitech and Partners Group made the largest positive contributions and we can look back on a very successful year. In principle, we remain positive about the Swiss equity market, as we are for the global equity markets.

Reports of a possible takeover of the US software company Ansys by its competitor Synopsis boosted the share price, causing Ansys to jump by around 18%. Other winners in our Global Equity Selection strategy were once again Straumann and Costco Wholesale. Since their inclusion at the end of October, the retail company’s shares have performed magnificently and we see further upside potential here. Big names such as Apple, Microsoft and Adobe had a somewhat weaker month. However, if we look at the gains of these stocks on an annualized basis, such a correction appears to be of a healthy nature. Overall, we can look back on a very successful year for this strategy.

What next? And what needs to be considered?

The two most important questions in the new year: How will the global economy develop and how quickly will interest rates fall?
We expect global economic growth to be below average overall in the new year, albeit with regional differences: The USA remains in surprisingly robust shape and we do not anticipate a real recession in the new year. As far as Europe is concerned, we expect a slight recovery. We do not yet expect any major positive impetus from China due to structural problems. The purchasing managers’ indices, which are regarded as leading indicators, currently show a mixed picture: the service sector is mostly in positive expansionary territory worldwide, while the industrial sector is still in negative contraction territory in most countries – albeit with signs of stabilization. Following a recent decline in corporate profits, we expect a turnaround towards a positive trend.

Inflation is falling worldwide and this trend is likely to continue. Accordingly, we do not expect any further interest rate hikes and anticipate key interest rate cuts from the middle of the year. It is important that interest rates are lowered quickly if the real economy shows signs of slowing down too much. On the risk side, the following points need to be kept in mind: Rising energy prices and disruptions in supply chains due to geopolitical conflicts are one of these factors. The sharp rise in debt in many countries should also be mentioned. Increased debt coupled with higher interest rates always harbors risks. And then there are the elections in the USA: the presidential elections can lead to uncertainty, which the markets generally do not like, and depending on the outcome, the effects could also affect important trading partners of the USA. Statistically, however, it can be said that election years tend to be positive for the stock markets.

Overall, we are confident about the 2024 investment year. Falling interest rates in a relatively stable economic environment create good framework conditions. However, a lot of positive factors are probably already priced into share prices, meaning that increased volatility must be expected on the markets. We are countering the risks in the new year with a focus on quality in both equities and bonds: Companies with a strong market position, low debt and high profitability. On the currency side, we expect the Swiss franc to remain strong.

We wish you all the best for the new year.

Point Capital Group
10. January 2024