Since the beginning of the year, the stock markets have shown a pessimistic side. Compared to the level at the turn of the year, the American stock market has corrected by 10% at times. The background to this development is the US Federal Reserve's intention to make its policy more restrictive in response to the high inflationary pressure. The US central bank reaffirmed this turnaround at its monetary policy meeting on Wednesday this week. Both interest rate steps and a balance sheet reduction are on the agenda this year.

No concrete decisions were made last Wednesday. The American stock markets reacted with ups and downs, but overall did not lose any more ground. The European markets were even unimpressed. Not without reason: the global economy is still doing very well. This is clearly reflected in the growth figures for the fourth quarter of 2021. The American economy recorded an above-average quarter with annualised growth of 6.9%. While the pandemic is currently still causing headwinds in some sectors, the situation in the industrialised countries is expected to ease in the coming months. Thus, the financial markets should be able to cope with a gradually more restrictive monetary policy.

Ukraine conflict causes unrest

In addition to monetary policy uncertainties, the geopolitical conflict between Russia and Ukraine also made itself felt. President Biden's remarks last weekend suggest that the US considers an escalation of the situation more likely. And the recent rejection by the USA and NATO of the demand for an end to NATO's eastward expansion leads to the danger of a further escalation. A violent conflict in this region could not only seriously affect individual countries, but in connection with the energy supply could affect the whole of Europe. However, many outcomes of the conflict are still possible and effects on the world economy are anything but certain. This was also reflected in the financial markets. While at the beginning of the week they reacted to the geopolitical tensions with accentuated losses in riskier investments, there have been no major reactions recently. From a tactical point of view, we consider a focus on a potential escalation scenario to make little sense at this point in time due to the hardly predictable developments.

Maintain tactical positioning

Our positioning based on rising interest rates and inflationary pressure with a healthy scepticism towards the US equity market has proven to be correct in recent weeks. We still see the greatest risk in a continuing cooling of the global economy with inflation rates remaining high. In such a scenario, the scope for support of the central banks in the industrialised countries – in contrast to all other recessions in recent decades – is severely limited. However, it is currently not foreseeable that the geopolitical conflict between Ukraine and Russia will lead to such a global economic slowdown. We will continue to monitor the situation closely for our clients.

PostFinance AG
Investment Research & Advisory
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3030 Bern
0848 888 700 (max. CHF 0.08/min. in Switzerland)