Martin Spieler: How would you summarise the first quarter on the stock markets?
René Nicolodi: Although we expected share prices to rise at the beginning of the year, the extent of the increase surprised us. In the US, the technology sector has once again made strong gains, fuelled by the hype surrounding artificial intelligence. US shares have risen by more than 7 per cent since the beginning of the year. European shares have risen by a good 5 per cent. The reason for the price fireworks was a combination of an unexpectedly good economy, robust corporate profits and expectations of interest rate cuts.
Are the expectations of interest rate cuts justified?
To the surprise of many, the Swiss National Bank was the first Western central bank to initiate a cycle of interest rate cuts in March. We expect other central banks, namely the US Fed, the ECB and the Bank of England, to follow suit in the summer - provided that inflation rates continue to fall.
Has inflation in the USA and Europe been overcome?
The big inflation shock is definitely behind us. Inflation expectations in the USA currently stand at a good 3 per cent and in Europe at 2.6 per cent, which is significantly lower than a year ago. With this decline, the first step has been taken. The second step, namely reaching and maintaining the 2 per cent mark, is much more difficult.
How do you assess the prospects for investors in the second quarter of the year?
Momentum on the stock markets is currently very strong. Corporate earnings are surprisingly robust. We believe that this rally may well continue into the summer. However, a lot depends on the inflation trend. If, contrary to expectations, inflation continues to rise, the expectations of interest rate cuts are unlikely to materialise. This would certainly increase uncertainty on the equity markets, some of which are highly priced.
What about other asset classes such as bonds?
Bonds, and government bonds in particular, belong in a balanced portfolio at these yield levels. This applies in particular to US government bonds. In view of the strong economy and the high level of debt, interest rates in the United States could tend to remain higher. With corporate bonds, we are more cautious due to the high valuations.
Where do you see further investment opportunities in the second quarter?
Take gold, for example. The price per troy ounce is at an all-time high. However, we are seeing strong demand from central banks, which could drive the price up further. We also believe that the positive momentum in US technology stocks could continue. We also see opportunities in the Japanese yen, the Australian dollar and the Norwegian krone.
This interview was first broadcast in the "Geld" programme on Tele 1, Tele M1 and TVO on 26 March 2024 (available in Swiss German only).
