Investor sentiment brightened dramatically in November. Falling interest rates in particular contributed to the upturn, as hopes of interest rate cuts by central banks increased. Economic data did not fall far short of expectations. Europe is weakening, but the leading indicators in November were slightly better than initially feared. Meanwhile, the US economy continues to hold up much better than expected. The second estimate of US GDP for the third quarter was revised up from 5% to 5.2%, while inflation continues to fall. Only the more volatile labour market data disappointed in the US, with 150 thousand new jobs created instead of 180. US inflation underperformed expectations and rose by 3.2% or 4% (core inflation) on an annualized basis in October. On top of this, warfare in the Middle East eased thanks to a ceasefire between Israel and Hamas. The economic data thus painted a picture of perfect disinflation or "Goldilocks". Accordingly, financial markets reacted with great relief. The previously negative investor sentiment had a reinforcing effect, with the result that November saw rarely seen gains for both bonds and equities. The USD lost considerable ground against most currencies as various comments by individual US Federal Reserve chairmen reinforced expectations of interest rate cuts. In Argentina, the people, plagued by notorious inflation, elected a new bearer of hope. Javier Milei is expected to put an end to corruption in the country and get inflation under control. He wants to achieve the latter by introducing the US dollar as the national currency. The stock exchange in Buenos Aires reacted with drastic price gains (see FOCUS). Elsewhere on the world political stage, US President Biden and Chinese President Xi Jinping met on the sidelines of the Apec summit for talks that left a constructive impression, but are unlikely to be of a long-term nature.
Once again, the Swiss equity market lagged behind the global benchmark indices. The SMI owes this underperformance in particular to the heavyweights. Roche is down -16% for the year (including its dividend) and Nestlé's shares are equally anemic (-5%). The entire fantasy is focused on the topic of artificial intelligence and therefore favors the US equity markets in particular. Growth expectations are correspondingly high and the fall in interest costs has therefore boosted the market all the more. We have benefited from this with an investment in the global semiconductor sector and have already realized profits after the faster than expected rise. European markets recorded their best monthly performance since January. In the medium term, we remain somewhat skeptical about the market's expectation of perfect disinflation. Accordingly, we want to keep funds ready to be able to buy counter-cyclically if these expectations are recalibrated. The newly found Goldilocks narrative also caused the implied volatility of the equity markets to fall significantly, with the "fear barometer" still slightly above 13 points at the end of November.
After a record weak start for the global bond markets, it now looks as if the US bond markets could avoid a third negative year. Long-term US Treasuries gained over 10% in November, almost as much as the US technology index Nasdaq (see FOCUS). In October, yields of around 5% were achieved on 10-year US government bonds. We increased the duration in our portfolios accordingly in October and benefited from these high yield levels. Yields on Swiss 10-year government bonds are now comfortably below 1% again following the easing, after almost 1.2% was still being paid in early November. The Swiss yield curve is strongly inverted. Two-year CHF bonds are yielding around 1.5% to 2%. As we have already pointed out several times, the signals from inverted yield curves tend to be negative as far as future economic growth is concerned.
Precious metals such as gold and silver also advanced on the back of falling interest rates. The price of silver rose by 10% and gold advanced by almost 3% against the USD, consolidating above the psychological 2000$/ounce mark. This means that the gold price does not have a long way to go to its all-time high of 2075$. Meanwhile, a breakout to new highs could attract retail money, which has not yet participated in the rally based on ETF data, although gold is now trading almost 12% higher for the year. Big buyers so far have mainly been central banks. Energy prices, on the other hand, fell by 5% (WTI). The details of the Opec+ oil production cut were still unclear at the end of the month, putting pressure on the oil price. The USD lost over 4% against the Swiss franc.
The positive seasonality has a supportive effect. The market has temporarily run hot and is calling for a consolidation before buyers could drive the market up again in a classic year-end rally. Seasonal patterns tend to indicate caution for the upcoming year 2024, which is in line with our economic world view. Even if the positive sentiment on the markets may persist in the short term, we remain cautious about the year ahead. Market sentiment is likely to cool again in the wake of weak economic data or a renewed rise in inflation, catching the market on the wrong foot.