2023-12-30 23:00:01
Interest rate cuts will be the driver of the stock markets in the new year
Investors also have to prepare for possible price corrections in 2024. In contrast, defensive Swiss stocks could experience a comeback.
Donald Trump is one of the likely candidates for the 2024 US presidential election. These have an influence on the development of the financial markets.
Foto: Charlie Neibergall (AP, Keystone)
I would like to invest and am wondering which investment options you particularly recommend in the coming year. It is to be expected that the Swiss National Bank will lower the key interest rate. How will this move affect stocks, bonds or ETFs/funds? MM
Even if the National Bank lowers interest rates in the new year, as is expected, this will hardly have a major impact on the stock markets. The drivers for the financial markets are rather the expected interest rate cuts by the US Federal Reserve, which affect all asset classes such as stocks, bonds and real estate.
However, I would warn against having too high expectations. Hopes of interest rate cuts are exaggerated. The US Federal Reserve recently signaled that it could cut interest rates three times in 2024. The markets, on the other hand, expect up to six interest rate cuts. Accordingly, US stocks have risen sharply. As much as we are pleased about the recovery in November and December, this also means that a lot of the interest rate cut hopes are already reflected in the prices.
If interest rates fall less than expected, this would weigh on prices. In addition, interest rate cuts are accompanied by an economic slowdown – no longer just in Europe and China, but also in the USA. If the economic engine runs weaker, this slows down the profit dynamics of the listed companies.
The Swiss stock exchange depends on Wall Street
While the US stock markets – especially US tech stocks – performed fantastically in 2023, Swiss stocks only got off to a slow start. Given the disappointing price development of Roche and Nestlé, the SMI only rose slightly and performed far less well than Wall Street or the European stock exchanges, where the DAX reached record levels.
The positive side is that defensive Swiss stocks have catch-up potential in 2024 and, unlike US tech stocks, the majority are not overpriced. The negative side is that the Swiss stock exchange depends on Wall Street: If there are corrections in the sharply rising US stocks in 2024, which I expect, this will also slow down Swiss securities.
Despite interest rate stimulus, I see another risk in 2024 in addition to the economic slowdown: geopolitics. This could start to worry us as early as January, when the presidential election will be held in Taiwan on January 13, 2024. Depending on the outcome, it could trigger sensitive reactions from China, to which the markets react sensitively.
The European elections in June 2024 and especially the US presidential election on November 5, 2024 will also have an impact on the markets. These elections as well as unexpected geopolitical events could cloud market sentiment.
I would therefore warn investors against too much optimism in 2024 and would focus more on defensive stocks, especially from Switzerland such as Nestlé, Roche, Novartis, Swisscom, Swiss Life, Zurich or Givaudan. You could cover the entire index with the UBS ETF (CH) SMI (CHF) A-dis. You would be cheaper with Swisscanto (CH) Index Equity Fund Large Caps Switzerland FA CHF with total costs of 0.14 percent.
Bonds in euros or dollars bring returns
I also see opportunities for Swiss small and midcaps in 2024. Here I would use an investment fund such as the Swisscanto (CH) Index Equity Fund Small & Mid Caps Switzerland FA CHF with low total costs of 0.3 percent or an exchange traded fund (ETF), as otherwise you will not achieve good diversification as a private investor. To protect my portfolio, I would use corporate bonds in Swiss francs with a term of 2 to 5 years or an investment fund or ETF that relies on Swiss bonds with short terms. Alternatively, medium-term bonds are an option. Foreign currency bonds in euros and dollars bring more returns. However, you bear a considerable currency risk here. That’s why I prefer franc securities.
Despite expected interest rate cuts, I would go into the new year with modest expectations and, given the weaker economic outlook and various geopolitical risks, I would primarily focus on a mix of solid, defensive Swiss quality stocks and bonds from good Swiss franc borrowers and round off the portfolio with an ETF on the world stock index ACWI, but only give this a slight weight.
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