Market overview: Equity markets remain optimistic

Although monetary policy doesn’t look likely to be relaxed until the second half of 2024, the equity markets remain optimistic thanks to the strong reporting season and AI boom. Neither fears over recession in the eurozone nor persisting concerns over inflation in the USA could dampen the mood.

  • The markets are still confident that the central banks will relax monetary policy significantly this year. However, there are still major challenges to overcome in light of faltering efforts to cut inflation, particularly in the USA. 

    Indexed performance of government bonds in Swiss francs

    100 = 01.01.2024

    This graphic shows the performance of government bonds from Switzerland, the USA and Germany in Swiss francs. Price performance was volatile last year. However, the bond markets made strong gains towards the end of 2023, before losing ground in the new year.
    Source: SIX, Bloomberg Barclays

    At the end of 2023, market expectations over the central banks’ future monetary policy were extremely optimistic. Cuts to policy rates of up to 1.5 percentage points were being forecast until the end of 2023. This optimistic outlook has been tempered slightly in the meantime. The markets now anticipate that policy rates will fall by around 0.75 percentage points by the end of the year. However, even these projections seem too optimistic. In the USA in particular, making further progress on reining in inflation appears challenging, as the economy continues to perform robustly. However, this has not deterred the bond markets. Government bonds generally trended sideways month-on-month. However, foreign bonds made a positive contribution to Swiss investors’ portfolios due to the weak Swiss franc.

    Trend in 10-year yields to maturity

    In percent

    The graphic shows the performance of yields on 10-year government bonds in Switzerland, the USA and Germany. 10-year yields to maturity are an important benchmark for interest rate developments. A strong downward trend can be observed over the long term. However, we have seen a trend reversal towards higher interest rates since early 2020. In March 2023, upward interest rate momentum was interrupted and didn’t pick up again until the summer. However, interest rates have fallen sharply again of late.
    Source: SIX, Bloomberg Barclays

    There was little overall change to long-term interest rates last month. In February, 10-year yields to maturity on government bonds were still trending upwards, but they fell again in early March. Interest rates still stand at 4.1 percent in the USA. In contrast, yields to maturity on 10-year Swiss government bonds fell considerably. After climbing to over 0.8 percent in early February, they now stand at slightly over 0.6 percent.

    Credit spreads on corporate bonds

    In percentage points

    This graphic shows the difference between the yields to maturity on government and corporate bonds in US dollars, euros and Swiss francs. These spreads widened considerably in the first half of 2022, only to narrow during the second half of the year and at the start of 2023. The credit spread widened slightly again in March 2023 and has generally trended sideways since then, before narrowing again recently.
    Source: Bloomberg Barclays

    The credit spreads on corporate bonds narrowed again last month. Low-quality corporate bonds fell most sharply. This means that risk premiums remain at a low level. There is little sign of an impending recession. 

  • Thanks to the persisting boom in artificial intelligence and the strong reporting season, most equity markets made gains. Fears of recession in the eurozone and ongoing concerns over inflation in the USA were largely pushed aside.

    Indexed stock market performance in Swiss francs

    100 = 01.01.2024

    This graphic shows the performance of the stock markets in Switzerland, worldwide and in emerging markets over the past 12 months in Swiss francs. The graphic shows equity markets began to recover after a downturn in the autumn of last year and that this trend is continuing.
    Source: SIX, MSCI

    The equity markets continued their upward trend last month. Equity prices actually hit new all-time highs in the USA. The last quarter’s strong reporting season and tech prices boosted by the boom in artificial intelligence made a major contribution. The Japanese equity market performed extremely strongly again last month and is up by over 16 percent since year-opening. The weak Japanese yen is a key factor in this, enabling Japan’s export-oriented economy to benefit from a weak domestic currency. By contrast, the Swiss market performed weakly again and was set back by the poor performance of Nestlé, the index heavyweight. The food group’s share price fell by over 6 percent last month, weighing on the price performance of the entire Swiss equity market. 

    Momentum of individual markets

    In percent

    The graphic shows the momentum of 12 key equity markets worldwide. Momentum compares the latest price level with the average figures from the past six months. Upward momentum on the equity markets in the industrial nations increasingly faltered in summer 2023. However, momentum broadly returned to positive territory in November 2023 thanks to the strong equity market rally.
    Source: MSCI

    The general rise in equity prices also boosted momentum on most equity markets, which now lies in positive territory almost across the board. Upward impetus remains strong on the tech-heavy stock markets, such as the Netherlands, USA and Taiwan. Momentum on the Chinese equity market returned to positive territory recently. However, this may be a momentary development rather than a lasting trend.

    Price/earnings ratio

    The graphic shows the price/earnings ratio (P/E ratio) for the stock markets in Switzerland, worldwide and in emerging markets since 2000. The P/E ratios of the three markets have declined considerably since summer 2020, thanks to rising corporate earnings and falling equity prices. However, P/E ratios have increasingly recovered since the end of 2022 thanks to higher equity prices.
    Source: SIX, MSCI

    The price/earnings (P/E) ratio on the equity markets rose again on a broad front last month. Above all, the P/E ratio improved in the USA and emerging markets, while Switzerland saw a more moderate rise. This development mainly reflects the price trend. Equity prices in the USA and emerging markets climbed much more sharply than in Switzerland last month. 

  • The upturn in Swiss real estate investments continued last month. In addition to lower capital market interest rates in Switzerland, impetus has also been provided over recent months in particular by greater leeway for rent rises, which was permitted by a higher reference interest rate.

    Indexed performance of Swiss real estate funds

    100 = 01.01.2024

    The graphic shows the indexed average performance of listed Swiss real estate funds over the past 12 months. Price performance over the period shown was extremely volatile. Real estate funds have made continual gains over the past three months.
    Source: SIX

    Exchange-listed Swiss real estate funds gained again last month, continuing their upward trend that has lasted since November 2023. The strong growth in value was achieved against a backdrop of a sharp drop in capital market interest rates. Yields to maturity on 10-year Swiss federal bonds fell sharply in February and now stand at just over 0.6 percent. The additional leeway for raising rent provided by the increase in the reference interest rate is having a positive effect on yield prospects. This may also have spurred on price performance.

    Premium on Swiss real estate funds and 10-year yields to maturity

    In percent

    This graphic shows the yield to maturity of 10-year Swiss government bonds and the premium on real estate properties contained in Swiss real estate funds since 2000. The sharp rise in interest rates last year led to a substantial fall in premiums. However, they have climbed strongly again recently.
    Source: SIX

    The premium paid by investors on exchange-listed real estate funds compared with the properties’ net asset value has risen considerably over recent months and now stands at around 25 percent. As the NAV of many properties has barely changed over recent months and years, despite a much higher level of interest than in the period 2015 to 2021, the recent increase is mainly due to the rise in the value of the real estate funds. 

    Three-month SARON and 10-year yields to maturity

    In percent

    This graphic shows the Swiss reference interest rate SARON with a three-month term and the yields to maturity of 10-year Swiss government bonds since 2000. The SARON stands at almost 2 percent due to the SNB’s interest rate rises, while yields to maturity on bonds are well below that level. This means the yield curve is still inverted.
    Source: SNB, SFSO

    The yields to maturity on 10-year Swiss government bonds decreased again last month and are now well below the 1-percent mark again. This means the extraordinary negative difference between the long-term and short-term interest rate level has widened again. However, in light of the low rate of inflation and weak economy in Switzerland, many market participants expect the Swiss National Bank (SNB) to cut its policy rate soon. The futures market is factoring in a much lower short-term interest rate until the end of the year.  

  • Currencies

    The Swiss franc’s phase of weakness observed since year-opening is continuing. However, in view of much lower inflation by international comparison, the Swiss franc may return to its appreciation trend over the medium and long term.

    Currency pairPricePPP Neutral range Valuation
    Currency pair
    EUR/CHF
    Price
    0.96
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.89
    Neutral range Range of historically normal fluctuations.
    0.82 – 0.96
    Valuation
    Euro neutral
    Currency pair
    USD/CHF
    Price
    0.88
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.79
    Neutral range Range of historically normal fluctuations.
    0.69 – 0.89
    Valuation
    USD neutral
    Currency pair
    GBP/CHF
    Price
    1.12
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.21
    Neutral range Range of historically normal fluctuations.
    1.04 – 1.37
    Valuation
    Pound sterling neutral
    Currency pair
    JPY/CHF
    Price
    0.59
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.92
    Neutral range Range of historically normal fluctuations.
    0.76 – 1.07
    Valuation
    Yen undervalued
    Currency pair
    SEK/CHF
    Price
    8.56
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    9.78
    Neutral range Range of historically normal fluctuations.
    8.77 – 10.78
    Valuation
    Krona undervalued
    Currency pair
    NOK/CHF
    Price
    8.40
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    10.60
    Neutral range Range of historically normal fluctuations.
    9.41 – 11.78
    Valuation
    Krone undervalued
    Currency pair
    EUR/USD
    Price
    1.08
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.13
    Neutral range Range of historically normal fluctuations.
    0.98 – 1.27
    Valuation
    Euro neutral
    Currency pair
    USD/JPY
    Price
    150.12
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    86.61
    Neutral range Range of historically normal fluctuations.
    67.73 – 105.49
    Valuation
    Yen undervalued
    Currency pair
    USD/CNY
    Price
    7.20
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    6.04
    Neutral range Range of historically normal fluctuations.
    5.61 – 6.46
    Valuation
    Renminbi undervalued

    Source: Web Financial Group

    After a strong end to 2023, the Swiss franc has weakened over the first few months of the new year. Since January, it has fallen by almost 3 percent against the euro and by 4.5 percent against the US dollar. In February, the Swiss franc was the worst performing G10 currency. However, this weakening may not represent a lasting trend. Much lower inflation by international comparison is likely to see the Swiss currency strengthen again in the near future.

    The US dollar has performed much more robustly so far in the new year. The US currency has gained by around 2.5 percent on a trade-weighted basis since early January. Of the G10 currencies, only the Swedish krona performed more strongly over this period. The Swedish krona also looks likely to make further ground. Despite its recent gains, it is still heavily undervalued in terms of purchasing power parity. 

    Cryptocurrencies

    CryptocurrencyRateYTD in USDHigh of the yearLow of the year
    Cryptocurrency
    BITCOIN
    Rate
    66'120,00
    YTD Year-to-date: since the start of the year in USD
    57,11%
    High of the year
    68'359,00
    Low of the year
    39'528,00
    Cryptocurrency
    ETHEREUM
    Rate
    3'812,46
    YTD Year-to-date: since the start of the year in USD
    66,01%
    High of the year
    3'812,46
    Low of the year
    2'207,26

    Source: Web Financial Group, Coin Metrics Inc.

    Gold

    The precious metal is on an upward trend and close to a new all-time high. Several central banks in emerging markets also appear to be playing a key role in this. 

    Indexed performance of gold in Swiss francs

    100 = 01.01.2024

    This graphic shows the indexed performance of gold in Swiss francs over the year. After stable price performance at the start of the year, it has made strong gains since early March.
    Source: Web Financial Group

    The gold price was extremely stable in the first two months of 2024, before seeing a sharp upturn in early March. The price per troy ounce now stands at just short of its record high of 2,135 US dollars. Various reasons explain the precious metal’s popularity. In addition to various geopolitical conflicts, which have led more people to seek secure investments, efforts by several central banks in emerging markets to make their monetary policy more independent of the US dollar have also led to strong demand. Last year, the World Gold Council (WGC), the industry organization, recorded the second strongest year in terms of gold acquisition by central banks.

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