You may be finding the same as many other investors: the 2023 stock market year will be over in less than three months, but there has been little sign of “many happy returns” as yet. The feeling is not deceptive: after three quarters, the record shows only a modest gain of 2.1% for the SMI, with the performance of its individual members varying markedly. This is particularly true of the three heavyweights Nestlé, Novartis and Roche. While Novartis did well, posting an above-average rise of 12.3%, its competitor and fellow SMI member Roche brought up the rear with a drop of 13.7% in its share price. Shares in Nestlé, the world’s largest food company, are again treading water, down a small 3.1% at the end of September.
Meanwhile, things are picking up again somewhat on the bond markets. Following years of negative interest rates, Swiss government bonds turned positive last year across all maturities. Nevertheless, this upward trend in 2023 has not continued without interruption. Only the yield on 1-year bonds rose, climbing from 1.48% at the turn of the year to 1.82% now, but interest rates on longer-dated bonds remained static or even slipped back. The much-watched yield on 10-year Swiss Confederation bonds, for instance, fell from 1.56% at the start of January to 1.08% at the moment.
A dangerous mix is brewing on capital markets in general at present, with inflation offering little potential for an imminent cut in interest rates and an economy that is in the doldrums. Although fears of recession have been doing the rounds recently, this danger does not appear to be acute at the moment. The SECO even expressed a little more confidence in its autumn forecast for this year. The expert group raised the target for gross domestic product (GDP) in 2023 from 1.1% to 1.3%, partly on the back of robust consumer spending. The majority of companies also gave positive reports at the end of the first half of the year. Nestlé, for instance, recorded a boost to growth due to price increases, lifting the bottom end of its earnings forecast for the year as a whole. Novartis, too, performed better than expected, even holding out the prospect of a new share buyback scheme worth billions of francs alongside higher revenue and profits.
How will equity markets develop over the rest of the year and next year, however? Although there is no recession on the immediate horizon, there does not seem to be much support coming from the economy. Indeed, in its latest economic forecast the SECO lowered its GDP growth target for 2024 from 1.5% to 1.2%. On the other hand, this in turn opens up the enticing prospect of interest rate cuts if inflation remains within bounds or, to put it better, does not exceed the SNB’s target of just under 2%. For investors who do not have the time to spend hours studying the economic parameters and researching those shares that may start on the comeback trail soon, and who also are not looking for complicated and expensive products, Leonteq has just the right solution: a bonus certificate with capital protection. This promising strategy allows above-average gains to be realised in what are rather uncertain times – and with minimal risk. You can read more about this in our Investment Solutions.
Source: SECO, e = expected