Stock market outlook 07/2024: Monetary policy – what is the Fed doing?

July 10, 2024

What has been the focus in recent weeks

In June, the SNB (Swiss National Bank) cut interest rates for the second time this year, surprising the majority of market participants. However, the appointment of Vice-Chairman Martin Schlegel as Thomas Jordan’s successor came as no surprise. The SNB is thus focusing on continuity – a good sign. With the interest rate cuts, the SNB showed foresight and courage. Although the decline in inflation in Switzerland has already gone much further than in most other economies, the Fed (US Federal Reserve) in particular has to put up with the question of whether it is not already “behind the curve” again. For far too long, the Fed described rising inflation as temporary and was correspondingly late in raising key interest rates. Most asset classes came under severe pressure as a result. Now there are increasing calls that the Fed could be tightening interest rates too late again. Even if inflation is not yet in the target range, it is falling. In addition, the US economy is showing more and more signs of slowing down. Although the economy is still doing well overall and consumer spending is intact, some indicators are pointing to a slowdown. It’s like a large tanker at sea: to initiate a course correction, you have to take the helm early. If interest rates are cut too late, this will weigh on the economy and the markets.

In addition to inflation data and possible interest rate cuts by central banks, the topic of AI (artificial intelligence) continued to dominate the markets. Will AI really be the biggest innovation in recent history with correspondingly unique investment opportunities?

Our investment solutions and positioning

Looking back at the first half of 2024, our multi-asset multi-asset strategies performed very well. All positions in the portfolio context have fulfilled their expectations: Bonds and real estate as stabilizing defensive elements and equity investments as return generators. In the equities segment, investments in European industrial stocks and exposure to global quality stocks were the frontrunners. Swiss government bonds took the top spots in fixed-income investments. We increased these further over the course of the second quarter at the expense of US government bonds, which has already had a positive effect.

The trends on the stock markets that we saw last year are continuing this year. The strongest sectors this year were again “technology” and “communications”, while the styles were “growth” and “quality”. In our Global Equity Trends equity strategy we use a rule-based trend recognition system and were therefore largely invested in precisely these sectors and styles. At the beginning of this month, we divested our exposure to utilities and consumer staples and instead added cyclical consumer goods and healthcare stocks to the portfolio. The strategy has thus become slightly more cyclical, but still includes defensive elements.

The Swiss stock market started the year on a weak note, but then made substantial gains over the course of the first half of the year. In recent weeks, however, it took a break and consolidated the strength seen previously. A pleasing development in our Swiss Equity Selection equity strategy the performance of the two pharmaceutical giants Roche and Novartis was particularly pleasing. They outperformed the market, although Roche still has some catching up to do. There are now signs that Roche’s two-year downward trend may be coming to an end, which should give the Swiss equity market as a whole further upside potential. The more cyclical stocks such as UBS, Sika and Geberit have struggled somewhat more. However, as we also see further upside potential for these companies, we are not making any adjustments for the time being.

Two companies from our Global Equity Selection equity strategy had their turn to present their quarterly results in June – Adobe and Accenture. Both managed to surprise investors positively, which was rewarded with share price gains of 15% and 7% respectively. Looking back at the first half of 2024, it can generally be said that the closer the companies were to technology stocks and growth stocks in terms of their business model, the better they have performed so far. In our view, positioning with a focus on fast-growing quality companies continues to be a promising approach. It has paid off so far that we have a healthy exposure to stocks with opportunities in the AI sector in our portfolio. Now that all the companies’ quarterly figures are available, we are subjecting the current composition to a major half-year review. We will report on the results in next month’s stock market outlook.

What next? And what needs to be considered?

Investors will be focusing on the presentation of the company’s results for the second quarter in the coming weeks and, in particular, on further developments relating to AI. In addition to occasional negative surprises in the wake of any “hype”, we expect AI to remain a dominant theme overall. We are also preparing for a lower interest rate environment – albeit with certain question marks over the timing in the US – a changed political environment and further advances in AI-related innovation.

We are also sticking to our assessment that 2024 will be a positive investment year overall. We therefore tend to see setbacks as opportunities to buy in the coming months. As far as the presidential elections in the US are concerned, there has regularly been increased volatility in the run-up to them in the past. We expect the same this year. Overall, more headwinds must be expected in the second half of the year. We therefore continue to attach great importance to the quality of our investments and a certain degree of diversification, both of which have already paid off in recent months. This is what we mean by active management, which also takes into account a healthy balance between opportunities on the one hand and risks on the other.

If you have a solid and, where possible, diversified investment strategy and a long-term investment horizon, you can continue to sleep well. The most important thing when investing is to be invested for the long term.

Point Capital Group
10. July 2024