Interest rates down, mood goes up

The stock market wisdom "Sell in May and go away ..." has not yet materialised. Hopes of interest rate cuts, among other things, have put us in a good mood. Although we remain constructive on equities, especially Swiss large caps, we are keeping a close eye on our sentiment and positioning indicators.

Stefano Zoffoli

The expected interest rate cuts are creating anticipation (Image:

Although the seasonality for the stock markets is actually rather weak at the moment, they made strong gains in May and recouped the losses from April. On the one hand, slightly lower inflation figures rekindled hopes of interest rate cuts, while on the other, companies once again delivered and presented good earnings figures (profit expectations were exceeded by around 8%). The absolute stock market favourite Nivida was even able to exceed the extremely high expectations once again. The companies are therefore still in a solid position.

Interest rates are heading south

In the coming months, however, we expect slightly weaker economic data (signs are increasing on the US labour market) and lower inflation figures (after goods prices, we also expect a decline in service prices). Interest rates are therefore likely to fall globally, which should provide a further tailwind on the financial markets. The Bank of Canada and the ECB are likely to start their cycle of interest rate cuts as early as June.

In this environment, the chances are intact that both bonds and equities will continue to perform well. Therefore, despite the considerable gains in the current year, we remain constructive in favour of traditional investments and retain a slight overweight in equities. In doing so, we are focussing on our sentiment and positioning indicators. Both are on the way to a sell signal. In view of the strong momentum, however, further price gains currently seem likely.

How do we currently assess the financial markets and how are we positioned?

  • The Swiss stock market has underperformed the global market by 16% over the past year. Nestlé and Roche are still caught in a downward spiral.
  • The tide now seems to be turning and relative earnings momentum is picking up. The Swiss equity market also outperformed in May (6% vs. 2% Europe).
  • Due to the weak performance, the valuation is comparatively moderate and dividend growth is strong. In addition, defensive sectors such as healthcare are still less in the focus of investors.
  • We are also buying Swiss large caps. We see further opportunities at global sector level in insurance, energy and IT.
  • The Australian dollar has delivered, appreciating 8% against the CHF since February. Our investment case has worked out.
  • The AUD also benefited from a massive rally in Chinese equities (+30%) and industrial metals (+25%), but the momentum is now slowing down.
  • The economic figures look good and there is no sign of an imminent interest rate cut by Australia's central bank. Government bonds are therefore less attractive in relative terms.
  • In addition to this profit-taking, we are selling inflation-linked bonds in this environment in favour of global nominal government bonds with a focus on Europe.
  • Catastrophe bonds have had a sensational phase with a 22% return since the beginning of 2023. Although spreads are still high, they are significantly lower than last year.
  • A record year for hurricanes is on the horizon due to increased water temperatures. According to the data analysis platform, around 12 hurricanes are forecast (long-term average of 6 per year). This does not necessarily mean a loss, but the risk is increasing.
  • We are therefore using the calm before the storm to take some of the profits. We are also closing our overweight position. Strategically, however, cat bonds remain an attractive investment.

Tactical Asset Allocation in June 2024

Relative weighting vs. Strategic Asset Allocation (SAA) in % in May and June 2024 (Source: Zürcher Kantonalbank, Asset Management)


Investment Strategy