The financial markets have been fluctuating between hope and resignation for months, primarily driven by the inflation trend. This largely determines how much more the central banks – particularly the US Federal Reserve – will raise key rates. It is hoped that interest rates will peak soon, after the sharp hikes in recent months. But it is also hoped that the economic damage caused by this restrictive monetary policy will not be too great. 

Investors’ hopes are currently being fed by recently published economic data. The economic growth figures for the third quarter showed an acceleration of growth in the US and sustained, albeit weaker, growth in the eurozone. However, above all else, the announcement of the fall in inflation in the USA for October was cause for celebration. While the decline in the overall inflation rate was expected, the drop in the core rate came as a surprise. This excludes sharply fluctuating energy and food prices and is a better indicator of the underlying inflation trend. While the equity markets have enjoyed one of their best months ever, the bond markets were also boosted by the surprise news on US inflation. The US dollar fell victim to this development, suffering its greatest setback since the start of the year. 

Underweighted equity position maintained

We do not regard last month’s rapid price gains on the equity markets as sustainable. Past experience has shown that monetary policy has a delayed impact. The economic impact of the sharp hike in key rates over recent months will only truly be felt during the coming months. While we hope that the economic consequences of this policy will be brief and mild, we don’t share the optimism found on the equity markets. That’s why we’re adopting a cautious approach to equity market positioning in the portfolios entrusted to us. 

Acquisition of US equities at the expense of those from Europe

Sharp equity market fluctuations over recent weeks have made a change in regional equity positioning necessary. We are selling European equities, but increasing the allocation of those from the US. This means that we’re cashing in on the strong gains made by European equities last month. With a two-digit inflation rate, European monetary policy has a long, restrictive path ahead. As a result, economic and monetary policy headwind may grow stronger and last longer in Europe. 

Reducing gold investments

Finally, we’ve also decided to reduce the gold position in the portfolios. This has served us well this year – gold is one of the few asset classes to generate a positive return in francs since the start of the year. But in light of the increased yields on bonds and money market investments, gold is losing its appeal. We’re taking advantage of recent price gains and realigning positioning to a neutral allocation.

Performance of asset classes

Our positioning – Swiss focus