Bulls vs. bears: Changes in sentiment on the financial markets

Bulls vs. bears: What does the change in sentiment mean?

Between October 12, 2022, and the end of January 2023, a stock market recovery began to emerge. The most dramatic rises were seen on stock exchanges in China and Europe. These markets had previously registered particularly steep losses. Furthermore, their key interest rates differed significantly from those in the US, where higher interest rates are serving as a greater obstacle to investment, particularly with regard to tech stocks.

Bonds also rose significantly, with USD-denominated emerging market bonds even posting similar gains to those for US equities. That makes this round a clear win for the bulls.

In the event of a downward correction for profit estimates, the price-earnings (P/E) ratios for the respective countries and regions could climb rapidly.

Together with the change in sentiment on stock markets, the wind also turned for the US dollar and gold. While the USD dropped from parity with the CHF to 93 centimes, gold took on a new shine. An ounce is once again trading above USD 1,900 – up from a level below USD 1,700 in October 2022.

What does an investment strategy have to do with changing market conditions?

Every good strategy needs to be reviewed on a regular basis. In this context, constant fine-tuning in order to stay on track is a valuable routine task that requires caution and attentiveness.

The relatively young Swiss Market Index (SMI) provides a helpful illustration: Since 1995, it has posted positive performance in roughly three out of every four three-year periods and in every 12-year period. A balanced investment strategy in CHF would have even posted positive results in every three-year period thanks to its bond component.

How is Credit Suisse dealing with the current trends?

1. A good strategy is the most crucial success factor. The long-standing track record of Credit Suisse's Strategic Asset Allocation (SAA) attests to this. In October 2022, it expanded its equities weighting, which had last been raised to 50%, and simultaneously increased the bond component by 2.5% at the expense of hedge funds. These two interventions are likely to make a valuable contribution in the future, as is global diversification. This strategic approach and diversification are continuing into 2023 as well.
2. In terms of tactical decisions, Credit Suisse is remaining cautious. Equity valuations are not favorable. Bonds represent an attractive alternative. Furthermore, the record-high profit margins seen recently are more likely to fall than rise. ¹ In times like these, caution, patience, and selectiveness are valuable qualities. Credit Suisse's favored Supertrends relating to energy and climate change offer growth at relatively favorable prices.
3. The struggle between "growth" and "value" is also striking. While P/E ratios for growth stocks have dropped from over 30x to less than 20x, the average P/E for value stocks has risen from 12x to over 16x. If both styles are equally expensive, then growth is probably the better choice.

_{¹ If this material contains statements concerning the future, such statements are forward-looking and therefore involve various risks and uncertainties. They are no guarantee of future results or future performance.}