Stock market outlook 12/2023: Christmas presents already in November

December 6, 2023

What has been the focus in recent weeks

At the end of October, the wind turned on the stock markets after strong selling pressure in the previous months. Bond prices also developed almost in sync with this. The reason for this was positive inflation data, which suggests that inflation will continue to fall. Accordingly, it is now increasingly expected that the central banks will not only not raise interest rates further, but even lower them. The economic data published in recent weeks can be summarized in simple terms as follows: USA strong (Christmas sales are already in full swing), Europe weak and China with a few question marks.
In the wake of this easing on the markets, the VIX fear barometer (a volatility indicator) reached new lows. In this environment, Apple managed to break the USD 3 trillion market capitalization barrier for the first time – a historic record. By comparison, Nestlé, the largest Swiss company by market capitalization, has a market capitalization of just around USD 300 billion, making it the third-largest company in Europe after Novo Nordisk (Denmark, pharmaceuticals) and LVMH (France, luxury goods and brands such as Louis Vuitton).
However, it was not only the very large companies whose share prices have risen sharply in recent weeks: The so-called market breadth was high in November, meaning that the share prices of smaller and medium-sized companies, for example, also rose in virtually equal measure. In this context, there was much talk this year of the “Magnificient Seven”. For a long time, the positive share price performance in the USA was almost exclusively attributable to seven large-cap stocks.

Our investment solutions and positioning

The expectation of falling interest rates has ensured a positive performance in our multi-asset strategies. However, the decline of the US dollar against the Swiss franc has reduced the overall result somewhat. Our slightly cyclical positioning with stocks from the European industrial sector as well as shares in small-cap companies has paid off in the current stock market environment. Investments in Swiss government bonds once again played their stabilizing role. We expect the stock market environment to remain friendly and are therefore keeping our positioning unchanged.

Once again, it was stocks from the technology sector and growth stocks that have made the biggest positive contribution to our Global Equity Trends equity strategy in recent weeks. Companies from the healthcare sector and value stocks were unable to confirm their relative strength from October, which is why we sold these investments at the end of the month. The industrial sector and financials now qualify for this. Both sectors have been represented in our trend portfolios since the beginning of the month. Overall, we currently have the greatest exposure to cyclical stocks and growth stocks in connection with technology. This shows that, according to our trend models, the upward trend on the global equity market is intact.

Financial stocks, led by Partners Group and UBS, have led the way in our Swiss Equity Selection equity strategy in recent weeks. UBS was thus able to overcome its highs from 2015 and is now trading at its highest level since the financial crisis. They were followed by stocks from the industrial sector, namely Geberit and ABB shares. Swiss super heavyweights Novartis, Roche and Nestlé once again brought up the rear. However, as these stocks have also made gains in recent weeks, all of our investments have contributed to the positive overall result. As with the global equity markets, we remain positive about the Swiss market and expect further gains.

For once, the top performers in our Global Equity Selection equity strategy in recent weeks were not based in the USA. The stocks of dental technology manufacturer Straumann were the clear top performers, ahead of Canadian technology company Constellation Software. At the other end of the ranking is Fortinet, which has come under pressure following the presentation of its third-quarter results and question marks over its strategic direction. Our recent new inclusion – Costco Wholesale – performed well and has already made a positive contribution to portfolio performance.

What next? And what needs to be considered?

For 2024, we expect higher prices for equities and bonds at the end of the year. We assume that inflation has passed its peak and will continue to decline. We also expect the global economy to cool slightly, stabilize in the course of 2024 and then pick up again.
The big question will be how quickly the central banks will cut interest rates. As we remember, the central banks waited too long to raise interest rates in 2021 and 2022 and then had to tighten them all the more. This led to corresponding distortions on the markets. It is now important for central banks to act more quickly, but without cutting interest rates too early. This is the major balancing act for central bankers in 2024.

In China, however, the situation is different: Deflation is already an issue there and we expect the government to adopt further measures to positively influence economic growth. Two points are fundamentally of the utmost importance for share price performance: earnings growth and interest rates. As far as earnings performance is concerned, we expect a positive trend for US companies in particular and later also for European companies. And as interest rates continue to fall, company valuations will rise, even though some of this may already be priced into current share prices. On the risk side, it is important to keep an eye on the geopolitical situation and in particular the development of the oil price. In the worst-case scenario, a sharp rise could lead to a second wave of inflation. However, we consider this risk to be very low. Finally, the US presidential elections also harbor certain risks. Further polarization could be viewed critically by the markets. But let’s not forget: in the 2016 US presidential election, the polls and forecasts were quite clear: Hillary Clinton would win and if Donald Trump was elected, share prices would fall as a result. As we know, things turned out differently twice: Trump won and the stock markets rose. It is therefore important to be diversified and focus on quality in 2024. Interestingly, quality stocks, for example, offer good opportunities in relative terms in practically all market phases.

However, despite our overall positive outlook for equities and bonds, the same applies to 2024: market movements will not be straightforward. This calls for discipline and a long-term view. You must not be guided by short-term mood swings – probably the most important factor for success on the stock market. Not being invested remains the greater risk for long-term investors.

Point Capital Group
6. December 2023