06 / 21


The financial markets remained largely calm in June. The US Federal Reserve briefly tested the market with a less expansionary outlook for monetary policy. The market expects the first interest rate hikes by the central bank in about two years. A cut in bond purchases has not yet been announced, but could already be communicated on the occasion of the Jackson Hole Symposium in August. The U.S. central bank seems to be proceeding very cautiously this time with regard to a return to a more restrictive monetary policy. Monetary policy-induced dislocations in the stock markets, as occurred in 2018 and 2013, seem to be something that officials want to avoid as much as possible this time, especially after the economy is only slowly emerging from the recession caused by the pandemic. Interest rate markets were already pointing to an economic peak via a flattening of the yield curve. Accordingly, more interest rate sensitive and defensive equity segments tended to show relative strength in June. The USD, on the other hand, strengthened. The global spread of the delta variant of the coronavirus, which first appeared in India, failed to overturn sentiment. In Australia, some major cities are already back in lockdown. The situation is prompting countries to vaccinate even faster, as the vaccines are also likely to be effective against the new variant.

Equity Markets

With the defensive equity segments in high demand, the Swiss stock market in particular was able to reach new highs. European indices also gained around 2%. However, these gains did not set new records; on the contrary, many country indices have tended to be trapped in a sideways trend since the end of April. The fall in interest rates at the long end once again caused a rotation in favor of US technology stocks. The majority of Asian stock exchanges closed lower. The earnings reports for the 2nd quarter will confirm from July what prices are already pricing in to some extent: US profits are expected to rise 52% year-on-year. This is the strongest increase since Q2 2009, putting the forward price/earnings ratio in the S&P 500 at 22.4x. In terms of reports, the focus will be on rising prices. Already in Q1, over 197 of 500 S&P 500 companies specifically mentioned "inflation" in their reports. Price pressures are likely to remain an issue in the current quarter, but especially in the manufacturing sector (see FOCUS).

Interest Rates

Interest rates rose sharply at the short end of the curve after the FED meeting. At the longer end, the central bank's communication caused yields to fall and inflation expectations to drop. The spread between 2-year and 10-year U.S. Treasuries narrowed more than 20 basis points to 1.2%.

Currencies / Commodities

Precious metals lost more than 5%, marking the strongest loss since 2016. The stronger USD, lower inflation expectations and higher short-term interest rates clearly affected the yellow metal and also the silver price (-8%). After the strong advances in copper and lumber prices, these commodities lost significant value again. The lumber price collapsed from $1711 to as low as $795 - it was previously running hot due to the strong US housing market and tight supply. The fall in commodity prices supports the Federal Reserve's view that inflation is likely to overshoot only temporarily.


We are sticking to our outlook. Equity markets are somewhat overheated in the short term, and a variety of indicators of the general state of the market continue to call for caution and increased selectivity. However, the very cautious approach of the U.S. Federal Reserve, together with the upcoming earnings reports, could provide continued stability. Cyclical stocks are likely to temporarily shift down a gear, at least from a relative perspective, with flattening PMI and declining credit growth in China, while defensive sectors (healthcare, consumer discretionary, utilities and possibly technology) are likely to regain some favor with investors. All in all, however, we still consider the risk-reward ratio to be only balanced in view of the positive growth outlook coupled with high valuations and expectations, and thus justify our neutral positioning. We intend to increase the equity allocation when opportunities become more favorable.