Stock market outlook – September 2022

September 5, 2022

“Powell has pulled the plug”

What moves the markets

It was only a brief appearance in front of the media, but it was quite something. The Chairman of the US Federal Reserve, Jerome Powell, recently made it clear that he would accept an economic downturn in order to push inflation back down to 2%. In view of the current economic data, his statements are hardly surprising. The Fed is therefore prepared to keep monetary policy restrictive for longer and rapid easing is not on the agenda. “Higher for longer” is therefore the motto for interest rates. This has caught many investors on the wrong foot.

As far as Europe is concerned, the situation on the inflation front remains tense and it will be interesting to see how resolutely the European Central Bank (ECB) will tackle the issue and shape its communication. The energy crisis is of course the central issue. This crisis has now also reached Switzerland. Electricity prices will become a real burden for the manufacturing industry.

Reporting on the results of international companies in the second quarter remained generally positive, but management frequently expressed caution regarding the outlook for the future.

How did the markets react?

Following Powell’s comments, the stock markets fell sharply, interest rates in the US rose and the US dollar became more expensive. In addition, there were signs of a weakening global economy, further increases in cost factors and supply bottlenecks. This led to volatile movements on the capital markets, particularly on the currency side.

What next?

The ECB, like the Bank of England, will have no choice but to raise key interest rates significantly. This will generally have a negative impact on equities in the short term. However: firstly, central bankers can change their minds quickly and secondly, these measures are likely to have already been priced in on the markets to some extent.

A look at the past shows that it has happened surprisingly often that central banks have changed course virtually overnight because the reactions in the interplay of the complex financial markets turned out differently than expected or they simply had to revise their opinion. This was recently the case with the Fed, which underestimated inflation for far too long. Against the backdrop of a weakening global economy and increased input costs, the development of corporate results will continue to be monitored with a keen eye.

A look at the seasonal patterns on the stock markets shows: September is regularly a rather weak month for equities before prices start to rise again towards the end of the year. But that’s just it: What is true on average is not necessarily true in individual cases…

How we position ourselves

Overall, we are sticking to our positioning with a defensive bias. A selective approach is important in the current environment. “Quality” is another important point. The strategic part of our equity strategies remains invested in quality companies for the long term: Companies with a solid balance sheet, strong market position and pricing power. The tactical part, on the other hand, is systematically reviewed once a month and adjusted if necessary. This remains defensive overall, with exposure to sectors such as consumer goods, utilities and healthcare. Such stocks also have good opportunities in a tense market environment.

In our multi-asset strategies, the arguments in favor of sticking to the current positioning continue to prevail: Having equities predominantly in defensive sectors, bonds only of first-class quality and gold as a stabilizing element and protection against further escalation in the Ukraine conflict. In terms of currencies, we continue to focus on the US dollar and the Swiss franc.

Point Capital Group
5. September 2022