Investing in September 2023: Equity weighting neutral

Investing in September 2023: Our views in brief

Credit Suisse gives its perspective on economic and financial market developments over the short to medium term and looks at the implications for investors. The Investment Committee is closing out its underweighting in equities given that the risks to the equity market have declined – driven by the likelihood of a soft landing for the US economy. Find out more in the article.

Soft landing for US economy improves equities outlook

Inflation is decreasing in the US while the labor market and the economy remain stable. The latest economic data was surprisingly positive, to the extent that recession is now unlikely over the next 12 months, giving way to the high probability of a soft landing. The risks to the equity market have reduced accordingly, and the Credit Suisse Investment Committee is closing out its underweighting. Given the delayed effect of interest rate hikes and the attractive investment alternatives available, however, there are still major risks for equities, and investors should buy with caution. Bonds remain the preferred asset class.

Economy: Stock cycle amplifies downward trend in industrial sector

Despite developments, many leading indicators continue to point to a recession in the US. The US yield curve is inverted, i.e. long-term interest rates are lower than short-term interest rates. This scenario suggests widespread expectations of weaker economic activity. Alongside this, the Purchasing Managers Index (PMI) is below the growth threshold. Economic growth is currently stable, however, due in particular to strong consumption. And recession would actually be too weak to knock the stable labor market off course.

After two years of stockpiling to arm themselves against repeated supply difficulties, a paradigm shift is now evident among companies, with inventories now considered to be "too large." According to the PMI, one in three Swiss industrial companies is reporting lower purchasing figures now than at any point since the survey began in 1995, despite falling purchase prices and shorter delivery times. This development is amplifying the downward trend in the industrial sector.

Financial markets: Swiss industrial companies reluctant to buy

Swiss industrial companies buying very few intermediate goods

Sources:, Credit Suisse
Last data point: July 2023

Interest rates and bonds: Inflation likely to ramp up from the fall

The economy in the euro zone has deteriorated significantly: Inflation remains high, which means further interest rate hikes are likely. Inflation continues to slow in the US, but stable growth brings the risk of further price increases in the future. Rate hikes in September by the central banks in these regions therefore appear likely, but are by no means certain. For its part, the Swiss National Bank (SNB) is expected to raise its policy rate to 2%, since inflation is expected to ramp up again from the fall.

Interest rates: Key interest rates to peak soon

Key interest rates to peak soon

Sources: Refinitiv Datastream, Credit Suisse
Last data point: August 22, 2023

Currencies: Swiss franc as a safe harbor

The Swiss franc has appreciated against the euro in recent months. The EUR/CHF exchange rate therefore remains well below parity. The Swiss franc has repeatedly shown its strength against other currencies though. The SNB's price stability-focused interest rate policy, Switzerland's comparatively lower inflation rate, and the Swiss franc's status as a safe harbor are likely to continue strongly underpinning the local currency.

Financial markets: Swiss franc showing strength

The EUR/CHF exchange rate remains well below parity

Sources: Bloomberg, Credit Suisse
Last data point: August 21, 2023

Equities: Underweighting in global equities closed out

The Credit Suisse Investment Committee has upgraded its tactical assessment of global equities from "Least Preferred" to "Neutral." This is due to the fact that the US economy is not likely to slide into a deep recession in the next 12 months. In addition, earnings growth compared to the previous year likely bottomed out in Q2 2023, and earnings prospects have since improved. A more balanced risk/reward ratio is therefore evident for equities over the tactical investment time horizon of one year.

Equities: Earnings growth expectations are improving

Earnings growth expectations are improving

Sources: Refinitiv Datastream, Credit Suisse
Last data point: August 21, 2023

Commodities: Weather and geopolitical situation dominate

The commodities benchmarks have increased again in recent weeks. Concerns about an economic slowdown persist, but economic activity has so far proven robust. On the supply side, production risks have increased either due to the weather and the geopolitical situation with agriculture, or due to voluntary cuts in oil production. As far as oil is concerned, Saudi Arabia's substantial cuts in production over the summer months are likely to lead to a volume trend that props up prices.

Commodities: Higher oil prices

Oil prices remain at a high level

Sources: Refinitiv Datastream, Credit Suisse
Last data point: August 18, 2023

Real estate: Current rental prices on verge of sharp increase

The increase in the reference interest rate from 1.25% to 1.5% as of June 1, 2023 means that numerous tenants will face rent increases from October. The increases could amount to 6% or more taking into account inflation and general cost increases. As a result, the rental price component in inflation measurement is likely to increase considerably. Finally, the reference interest rate could rise again to 1.75% by the end of this year.

Real estate: Rents increasing in 2023

Rent increases likely in 2023

Sources: Swiss Federal Statistical Office, Federal Housing Office, Credit Suisse
Last data point: Q2 2023

Historical performance and financial market scenarios are not reliable indicators of future results.

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