Stock market outlook 05/2024: Healthy consolidation

May 7, 2024

What has been the focus in recent weeks

The reporting season for corporate results in the first quarter has picked up speed and shows an overall positive picture: the majority of companies are reporting robust figures on business performance and positive expectations for the coming months. The results of the major tech companies in the USA were particularly eagerly awaited. This seems to confirm that it is indeed possible to earn money with artificial intelligence (AI). This is particularly important in view of the further potential in this area. It was also noticeable that shares in companies that failed to meet expectations for business development were punished in some cases with sharp price falls, which led to corresponding volatility.
While inflation in Europe is still on the decline, there are signs of a slowdown in the USA on the way to lower inflation rates. Just a few months ago, the markets were expecting seven interest rate cuts in the USA this year. Now just one is expected. The fact that the stock markets have performed well so far this year despite this fundamental change in expectations is certainly a positive development.The consolidation on the stock markets in recent weeks can be considered healthy. Statistically speaking, such “setbacks” are completely normal in healthy stock market phases.

Our investment solutions and positioning

In April, we suffered a slight decline in our multi-asset strategies. This was triggered, among other things, by the change in expectations regarding interest rate cuts in the USA. However, investments in gold performed positively and Swiss government bonds once again proved to be a stabilizing element. Both the US dollar and the euro appreciated against the Swiss franc and also had a positive impact on performance. Our leading indicators have continued to improve and we are preparing for a more cyclical orientation.

After we have focused on the Global Equity Trends equity strategy in April, the trends in quality stocks and small-cap companies have now also deteriorated. This makes the communications sector the only one to retain its position since May 2023. The last reallocation was in favor of value stocks as well as the defensive sectors of utilities and consumer staples. As a result, the strategy now consists of a mix of value stocks, cyclical stocks and defensive sectors. Growth stocks and so-called mega-cap stocks with a particularly high market capitalization are currently underrepresented.

Last month, the Swiss stock market was once again one of the laggards in an international comparison. However, considering the weakening of the Swiss franc against most major currencies, there is reason to believe that this could well change in the coming weeks and months. In our Swiss Equity Selection strategy, the stocks of the industrial company ABB were among the clear winners, followed by Novartis. Stocks from the basic materials sector such as Givaudan and Sika were also among the top performers. On the other hand, we were disappointed by the dental technology group Straumann. Although the quarterly results were by no means bad, the large regional differences in sales development probably unsettled many investors. However, we continue to regard Straumann as a company with extremely promising long-term prospects.

Our Global Equity Selection equity strategy was not spared from the downturn on the global financial markets. Although companies such as Alphabet (Google), Apple and Costco have made gains in recent weeks, this was not enough to turn the overall result into positive territory. Some of our investments are currently consolidating. However, if we look at the previous share price performance, this can be interpreted as normal market behavior and is no cause for concern.

What next? And what needs to be considered?

Many leading indicators for the development of the global economy are positive. At the same time, the US economy appears to be losing some momentum, which reduces the risk of overheating. This in turn is positive with regard to the further course of inflation and may give the US Federal Reserve arguments to lower interest rates.
Temporary consolidations such as those seen on the stock markets in recent weeks are to be expected. This could be triggered, for example, by the risk of inflation flaring up again, at least temporarily, as a result of higher oil prices or the impact of geopolitical risks in general. The high level of national debt, particularly in the USA, could also become a burdening issue. But with a solid and, where possible, diversified investment strategy, combined with a long-term focus, you should still be able to sleep well. Like everything in life, investing is not without risk. But you will ultimately be rewarded with an attractive return. The medium-term upward trends on the equity markets remain intact and are relatively broad-based. We remain positive about the 2024 investment year and are maintaining our fundamentally neutral positioning in our multi-asset solutions, albeit with the addition of a few cyclical elements. Gold also retains its important place. In terms of equity investments, we are focusing on quality companies with low debt and good profitability ratios.

Point Capital Group
7. May 2024