Strategy Update 3rd Quarter 2023


Interest rates: “higher for longer” – markets are in a hangover phase.
Anyone who thought that central banks would cut interest rates again as early as the end of 2023 or the beginning of 2024 has been proven wrong. Inflation figures are slowly improving in all industrialized countries but the economy remains especially robust in the US. The labor market there remains too strong, putting inflationary pressure on wages. For this reason, September saw the US Federal Reserve reviewing its stance and announced interest rate cuts as per end of 2024 at the earliest (“higher for longer”). Even if the rise in key interest rates has paused for the time being (US and SNB) or is likely to slowly peter out (ECB), the significant rise in US interest rates over the long term is increasingly causing headaches for investors. As a result, share prices have suffered, as higher discounting rates have now become a significant factor for company valuations. At the beginning of October, yields on 10-year US Treasuries were close to the 5% mark. Historically, this has often been considered a turning point in the market, since “safe money” or safe yield becomes a valid alternative to equities. After a summer lull on the stock markets, September once again proved that it is usually the year’s worst stock market month. While sector rotations still dominated the market during the year, with only 7 companies from the S&P 500 driving the index, and 493 stocks more or less remaining in place, the stock markets lost value across the board during the summer months – particularly in September. In the last few weeks, in both the US and Europe, we saw corrections of 5-9% depending on the index.
However, we cannot let this unsettle us: during this period, selected stocks and sectors have become much more attractive again and offer opportunities for longterm investors. The important thing is to only stay invested in sectors and companies that have solid balance sheets with low debt levels. This is most important at a time of significantly higher interest rates, so inflation can be passed on via price increases. With interest rates close to – or, in the case of the US, above – the inflation rate, bonds should slowly find their way back into balanced strategies as an alternative to good equities.

Read more in the Strategy Update from the third quarter 2023.

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