Phases of sideways movements could occur more frequently

Investment Policy, March 2023

Phases of sideways movements could occur more frequently

The first two months of the year were shaped by optimism on the financial markets that practically reached euphoric levels. On one side of the coin, the improvement observed on the markets is a fact and has to be respected. On the other, however, it is questionable how the US Federal Reserve will find itself in a position to lower interest rates as still hoped by many investors without a significant economic slowdown. It is possible that the truth lies somewhere in the middle, possibly leading to a prolonged period of sideways movements in various parts of the financial markets. The significance of corporate earnings is likely to remain high for both equities and corporate bonds.  

It appears to have become the market consensus that while headline inflation in Europe and the US has peaked and is now trending downwards, economic growth is heading for a so-called soft landing. This is by no means set in stone, however, as historical evidence reveals that the impact of massive interest rate hikes is only felt in the real economy following a delay of several quarters. The relatively warm winter to date, together with the provision of government support in some countries, has at least depressed energy prices to such an extent that incomes have been less impacted than expected by excessively high oil and gas prices. In the US, the labour market is also very dry, which likewise lends support to incomes. Nevertheless, a sense of euphoria would be over the top, as record low unemployment (at its lowest level since 1970 in the US and lowest point for 20 years in the Eurozone) keeps wage growth and thus also core inflation excluding energy and food at levels above the historical average. 


The market recovery in the equities space is likely to give way to a consolidation, as many of the factors that are positive but by no means certain to come to fruition in the future have already been priced into the equity markets. It is likely to be difficult to sustain the growth seen during the opening months of the year, which have been boosted by the warm winter weather, over the course of 2023, as the global economy has historically reacted with a delay of several quarters to massive interest rate hikes such as those seen in recent times. While the cheques sent out by the US government to the population during the coronavirus crisis led to an increase in savings, these are gradually melting away as a result of the consumer spending spree that has been palpable since 2020. The change in the asset situation arising from the 15% decline in the value of equities and bonds during 2022 should also not be forgotten despite the recent recovery. Overall, despite everything, a certain economic slowdown is to be expected for 2023. On the other hand, the consumption of the Chinese population around Chinese New Year and their travel activity will support the international economy to a certain extent. Finally, the market situation has been improved thanks to the breaking of the linear downtrend from 2022 in the S&P 500 Index, a positive change that should be noted even if it is still a relatively recent development. A slightly more balanced positioning in the equity markets therefore appears possible without already betting on a sustained bull market.  

While the market situation shows certain improvements, there is little room for euphoria.

Gérard Piasko, Chief Investment Officer


Recent weeks have shown that volatility in both directions can also hit the bond space – depending on how the communication of central bank representatives and economic data are interpreted. Generally speaking, there are two interesting themes in the bond markets. On the one hand, thanks to the increase in initial yields relative to recent years, greater demand is to be expected from institutional investors, for example from pension funds and insurance companies, possibly at the expense of real estate investments. This also makes bonds an alternative to riskier equities should economic growth weaken markedly. On the other hand, however, if an economic slowdown were to materialise, it would come as no surprise if corporate bonds of robust quality were once again to receive greater attention from investors relative to government bonds thanks to the additional yield they offer (the so-called “carry”). Due to the fact that, despite everything, a certain economic slowdown should be expected in 2023, it makes more sense to back more solid “investment grade” bonds over their riskier “high yield” counterparts. In the event of a considerable economic slowdown, the latter would likely be used by many investors again for profit-taking following the recent advances. 


Due to the European Central Bank’s more restrictive communication relative to that of the US Federal Reserve, the euro has been able to make up some ground since the end of 2022. Viewed over the medium term, it can be seen that the US dollar has no longer been able to maintain its trend of strength from last year – including against the Swiss franc. At a global level, however, no other currency can currently assume the status of a global currency reserve. In the short term, we can expect more volatility on the chart in both directions. For the US dollar against the Swiss franc, for example, movements of roughly 4% to 6% around the 0.92 mark would therefore not surprise us. In the case of the euro against the US dollar, fluctuations of between 4% and 6% around the 1.08 mark may be seen. This is not least because, according to inflation-adjusted purchasing power parity, the euro does not seem far removed from its fair level.


Energy commodities have not been able to keep pace with industrial metals since the beginning of the year. While copper and other commodities used by the manufacturing industry have benefited from greater demand from China, the relatively warm winter weather to date has kept gas prices under pressure. This has also meant that less “oil-for-gas substitution” has been necessary in Europe than had originally been feared, a fact that has weighted on oil prices relative to other commodities. In the case of the gold price, the fluctuations in the US dollar seen recently have given rise to new volatility. After reaching the mark of USD 1,950 per ounce, gold underwent a necessary correction, as the rise from the low point of USD 1,622 per once had amounted to a full 20%. 

Gérard Piasko

Gérard Piasko

Gérard Piasko is Chief Investment Officer and head of the investment committee of private bank Maerki Baumann & Co. AG. Before he was for many years Chief Investment Officer of Julius Baer, Sal. Oppenheim and Deutsche Bank.

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This publication is intended for information and marketing purposes only, and is not geared to the conclusion of a contract. It only contains the market and investment commentaries of Maerki Baumann & Co. AG and an assessment of selected financial instruments. Consequently, this publication does not constitute investment advice or a specific individual investment recommendation, and is not an offer for the purchase or sale of investment instruments. Maerki Baumann & Co. AG does not provide legal or tax advice. In addition, Maerki Baumann & Co. AG accepts no liability whatsoever for the content of this document; in particular, it does not accept any liability for losses of any kind, whether direct, indirect or incidental, which may be incurred as a result of using the information contained in this document and/or arising from the risks inherent in the financial markets.

Editorial deadline: 28 February 2023

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