Strategy Update: January 2025
Review 2024
REVIEW
THE FINANCIAL MARKETS 2024
EQUITY MARKETS
All in all, 2024 is a very successful year for the global equity markets, at least on the surface. However, the divergence has rarely been greater, starting with the performance of the individual regions. Without the USA, the global equity year would probably be categorised as average. In addition, US equity gains are driven by a few ‘MEGA caps’ – the 10 largest companies in the US account for more than 63% of the annualised returns achieved by the S&P 500 index in 2024. In fact, more than a third of the 500 largest companies in the USA recorded losses in value in 2024. The 20 largest Swiss companies increased in value significantly more than less highly capitalised companies. This was despite the fact that index heavyweight Nestle had its worst year for shares in the last 40 years. In addition to the 20 largest companies in the SPI, almost 50% of other Swiss companies suffered losses in value – out of a total of 210 shares, 99 of the 190 smallest shares have been negative since the beginning of the year. Some well-known companies, such as Meyer Burger, Gurit and the Pierer Group (which is listed in Switzerland), are even on the verge of going out of business.
RATES
After years of negative interest rates, Swiss savers enjoyed positive interest rates on their savings accounts at the start of the year. Today, almost 12 months later, the situation has deteriorated significantly again. Following the SNB’s further interest rate cut from 1% to 0.5%, savers have almost no interest left after taxes and costs. Central banks abroad also eased their monetary policy. The European Central Bank cut interest rates in four steps from 4% to 3%. The main reason for this was to give the European economy a boost. Jerome Powell, Chairman of the Fed, also announced three interest rate cuts. In the USA, interest rates were 5.25%-5.50% at the beginning of the year and currently stand at 4.25%-4.50%. The main reason given by the monetary authorities for these decisions was a normalising labour market and declining inflation. You can find our reasons why we expect the interest rate cuts to end soon in the outlook.
COMMODITIES
Gold reached new highs several times. At the beginning of the year, this movement in the precious metal was driven by purchases by central banks seeking to become less dependent on the US dollar (‘dedollarisation’). Due to falling real interest rates, there was also an increase in inflows from investors from the summer onwards. Commodity prices rose overall despite falling inflation figures. A certain divergence is also recognisable here. While crude oil came under pressure, gas prices rose significantly. Soya, wheat and cotton also fell in value, while cocoa is at record highs.
POLITICS
Donald Trump, a familiar figure, will be back on the stage next year. In the current environment, he will probably have to moderate his intentions regarding interest rate cuts and further punitive tariffs, or at least supplement them with more restrictive measures in relation to inflation. However, his business-dominated cabinet also offers opportunities.
OUTLOOK
OUTLOOK | 2025
ECONOMIC GROWTH
The USA once again has to shoulder a large part of global growth. Although growth expectations for Europe and Switzerland are still slightly positive, the US growth rate is unlikely to be matched. Although the US labour market appears to be normalising, it will still take some time for the labour market to move away from full employment status. The unemployment rate is slightly above 4% – what most economists consider to be full employment. In addition, there are still more than 7.7 million unfilled job vacancies. This equates to around 4.7% of the total labour force in the USA. It therefore seems unsurprising that consumer spending is continuing. Retail sales continue to grow at solid levels globally. In addition, more strategic investments are being made in machinery, tools, furniture and land, for example. However, the high level of credit card debt in the USA must be viewed critically. This has recently risen to a record $1.166 trillion – 4.3% of US GDP.
INFLATION
There is currently no recession in sight and yet monetary policy is still being loosened. We believe it is premature to assume that inflation has been permanently combated. On the contrary, we expect further waves of inflation in the coming quarters. This is also because the new US president will tend to create additional inflationary pressure. In addition, fiscal policy remains expansive in many regions, which is causing government debt to rise steadily. As ‘perceived inflation’ is increasingly becoming a problem for the population, social tensions are the result. These are the basis for populists around the world. And will probably continue to keep fiscal spending high and thus increase inflationary pressure.
FINANCIAL MARKETS
We expect solid economic growth, an expansive fiscal policy and further waves of inflation. It would therefore come as no surprise if interest rates were to be lowered less than market participants are anticipating or even rise slightly again. Global corporate profits should also rise moderately in 2025. Analysts expect global earnings growth of 10.4%, although in the past these expectations have been continuously reduced over the course of the year. In global surveys, CEOs continue to expect slight sales growth and solid order intake. Commodities offer an exciting alternative in the current environment in terms of inflation protection and for diversification reasons.
„KNOWN“ RISKS
The high profit expectations, together with high valuations driven by the USA, are having a dampening effect on the expected value developments on the stock market. Companies first have to generate solid profits for valuations to come down to sustainable levels.