Stock market outlook 04/2024: The SNB takes the first step

April 4, 2024

What has been the focus in recent weeks

Swiss National Bank Chairman Thomas Jordan surprised the markets before his departure and was one of the first national banks to lower its key interest rates from 1.75 % to 1.5 %. This was the second time that the Swiss National Bank (SNB) had surprised the markets: it had already surprised the European Central Bank (ECB) by raising key interest rates in the wake of rising inflation. The SNB succeeded extremely well in maneuvering the Swiss economy through the inflationary phase after coronavirus. Switzerland was virtually an island when it came to inflation: nowhere else in the West was inflation so low. And now inflation has been below 2 percent for several months, meaning that so-called price stability applies. The Swiss stock market, with its strong focus on exports, was able to benefit from the interest rate cut and rose as a result. But investors in foreign shares are also among the beneficiaries: the Swiss franc has weakened against foreign currencies, which means currency gains for Swiss investors. Lower interest rates also generally have a positive effect on share prices, as this makes valuations more attractive. Bond prices can also rise as a result. A weaker Swiss franc is of course also good news for the domestic tourism industry, as a vacation in Switzerland is now financially more attractive again for foreigners. The situation is different for Swiss people traveling abroad: These have now naturally become more expensive. In the medium term, there is good news for homeowners and tenants: Falling mortgage interest rates and a falling reference interest rate for tenants are the result. Savers, on the other hand, are not among the winners: savings accounts will continue to offer no attractive interest rates in the future.

Thomas Jordan will leave the SNB at the end of September. It can be assumed that his deputy Martin Schlegel will take over as his successor, meaning that no change to the current course is to be expected. In addition to the focus on inflation data and the reactions of central banks, another topic has been in the spotlight in recent weeks: the price of gold is at an all-time high.
Despite a somewhat stronger US dollar and a slight rise in US interest rates, the price of gold has risen massively. For some time now, national banks have been increasingly buying gold again, thus driving up the price. These are mainly emerging and developing countries. However, industrialized countries such as Singapore have also increased their gold reserves. Geopolitical risks and the desire to achieve greater independence from the US dollar play a role here. Interestingly, demand for gold investments from private investors in Western countries has been declining again since the beginning of last year – so there is even more potential here.

Our investment solutions and positioning

Our scenario for 2024 envisaged a positive investment environment, particularly for equities. Thanks to our appropriate positioning, all of our strategies have performed very well in the first few months of this year.

Despite a slight rise in interest rates in the US in the first quarter, both the equity and real estate asset classes performed well. As mentioned, gold also made significant gains. As a result, our multi-asset strategies all asset classes, with the exception of bonds, made a positive contribution this year. European industrial stocks led the way, followed by global quality stocks. Due to the depreciation of the Swiss franc, foreign currencies such as the US dollar and the euro also made a positive contribution to the overall result. We are leaving our allocation unchanged for the time being, but are preparing for a possible more cyclical orientation.

In March, we saw a slightly different picture for the first time in terms of share sector performance. Stocks from the energy, raw materials & basic materials and utilities sectors took the top spots in March. At the lower end are the consumer discretionary, technology and growth sectors. As a result of this development, our Global Equity Trends equity strategy equity strategy. For example, we have removed our exposure to technology, large-cap companies and growth stocks. Instead, we have added the energy sector as well as mid- and small-capitalized companies with a focus on substance. As a result, the focus is now less on large-cap growth companies and more on a mix of substance and quality.

In an international comparison, the Swiss equity market is still struggling. Although all of our investments in the Swiss Equity Selection equity strategy except Alcon made a positive contribution in March, the heavyweights Roche and Nestlé in particular had a negative impact on an annual basis. Our decision not to bet too heavily on these companies has so far paid off. Our cyclical investments in companies such as Holcim and Richemont are looking more positive. Both gained around 20 % in the first quarter, making a strong contribution to the positive overall result. In general, we remain positive about the Swiss equity market and see further potential for catching up internationally.

In the Global Equity Selection equity strategy the last companies whose turn it was to present their corporate results unfortunately failed to convince investors. Lululemon, for example, suffered a fall of around 15 %, while Accenture’s shares were down almost 10 %. However, we expect further upside potential for both companies in the long term and currently see no cause for concern. As in 2023, our top performer for the first three months of the year is Nvidia. The chip manufacturer’s shares were once again in high demand due to the ongoing AI boom. For risk management reasons, we recently rebalanced, i.e. reduced our position in Nvidia in favor of other stocks. Otherwise, we are sticking to our selection and continue to consider quality stocks to be very promising.

What next? And what needs to be considered?

The continued robust state of the US economy, as well as the increasingly positive economic reports from other regions of the world, suggest that the environment for equity investments remains attractive. The fact that inflation is also falling at the same time is an additional positive factor. Accordingly, we remain positive for the 2024 investment year. Temporary consolidation is of course to be expected, but as always, there are also risks that could come into focus. The danger of inflation flaring up again, at least temporarily, for example as a result of higher oil prices, and the impact of geopolitical risks in general must also be taken into account. The high level of national debt, particularly in the USA, could also become a burdening issue. We position ourselves in an appropriately diversified manner, depending on the strategy in terms of asset classes, currencies, sectors and countries. What all our strategies have in common: We make no compromises when it comes to quality. This is because quality generally has the best chance of prevailing in the long term.

Point Capital Group
4. April 2024