Stock market outlook 03/2024: Strong US corporate results

March 6, 2024

What has been the focus in recent weeks

The stock markets have continued to perform positively overall in recent weeks, albeit with regional differences.
The positive reports from US companies on business performance in the fourth quarter of 2023 and the outlook were remarkable. Despite growing concerns about economic development and the Fed’s interest rate policy, the reporting season provided investors with numerous reasons to be positive about the further development of the stock market. The results for the last quarter showed that the majority of major US companies are doing well. The technology giants in particular continued to grow and, thanks to cost reductions, margins also remained stable at a high level. Overall, the American corporate world ended the year on a surprisingly strong note. More than three quarters of the companies in the S&P 500 were able to surprise positively in terms of earnings performance.

The situation is currently different on the Swiss market. It has still not been able to make any real gains in recent weeks. This applies not only to the heavyweights Nestlé, Roche and Novartis, but to the entire Swiss market.

For 2023 as a whole, US companies were able to increase sales by an average of around 6% and generated a return on investment of almost 10%. The situation is very different in Europe: The twenty largest Swiss companies, represented in the SMI Swiss Market Index, were only able to increase sales by 3.4 %, but did so with an attractive return on capital employed of 11.5 %. Things look less rosy in Germany: The 40 companies represented in the DAX increased sales by only 1.2 % and the return on capital was less than 6 %.

Technology stocks are lacking in Europe

One reason for Europe’s poor performance compared to the USA is the so-called sector mix: the IT sector accounts for around 30% (by market weight) in the USA. In the European share indices, its weighting is less than 8 %. And this is where the music is currently playing: artificial intelligence, cloud solutions, semiconductors, these are the keywords. One US company in particular stands out in this respect: Nvidia, the world’s leading developer of graphics processors, is surfing the AI wave and is now one of the most valuable companies in the world. The CEO was able to report record results for the past quarter and also presented a very positive outlook. This has pulled technology stocks, but also the entire stock market, upwards.

Our investment solutions and positioning

The positive performance of the equity markets in February made a significant contribution to our multi-asset strategies. We saw the strongest positive developments in quality stocks and industrial stocks – which can be attributed to our slightly cyclical orientation. On the currency side, both the US dollar and the euro again made gains against the Swiss franc. Fixed-interest investments again struggled somewhat more. While Swiss government bonds remained very stable, US bonds suffered a slight decline. We are keeping our allocation unchanged for the time being.

Our equity strategy Global Equity Trends continued to make significant gains and there is not much new to report at present: We see the strongest trends – and therefore also the highest positive contributions – in the areas of growth stocks, technology and communications. At sector level, defensive stocks such as consumer staples and utilities are still bringing up the rear and are therefore not part of our portfolios. The long-term trend picture has hardly changed and our portfolios have therefore remained unchanged.

What our Swiss Equity Selection strategy, it continues to make only small steps forward: the Swiss equity market is simply not in demand among investors at the moment. The Swiss Performance Index (SPI) is up just 2% since the beginning of the year. Looking at the SPI Extra (SPI excluding the 20 SMI companies), the situation is even worse with a gain of 1.4 %. The quarterly results of the stocks were mixed: ABB and Alcon were able to convince investors, while Nestlé and Straumann were at least temporarily disappointing. In the long term, however, we remain confident about the performance of these stocks.

In the equity strategy Global Equity Selection we can look back on a very successful February. Virtually all of our investments once again had a positive impact on the overall result – with two exceptions: Adobe and West Pharmaceuticals. The latter was punished by investors after the presentation of the results, but is already recovering. On the other side of the spectrum, there are familiar names such as Nvidia, Amazon and LVMH. Nvidia’s results were celebrated with a jump of over 16% on the stock market.

What next? And what needs to be considered?

The big question on the markets is: when will key interest rates be cut? The markets are literally hanging on the lips of central bankers and reacting to every little statement. As far as the USA is concerned, we continue to expect interest rate cuts towards the middle of the year.
After the strong advances on many stock markets, a breather would of course come as no surprise. However, market breadth in particular – an important measure of the sustainability of an upward trend – has continued to improve in recent weeks. The price increases were more broadly based and smaller companies, for example, were also able to make gains. In addition, the medium-term trends on the markets remain strong. The chances of a positive market trend therefore remain intact.

Point Capital Group
6. March 2024