01 / 22


Equities suffered extreme losses in January. The main concerns were the Ukraine conflict and the normalization of the still ultra-expansive monetary policy in the USA. Talks between the USA and Russia ended in Geneva without any significant success in negotiations. By mid-January, U.S. markets had experienced the worst start to the year ever in history. The fight against inflation has once again become the center of attention. In the U.S., this more aggressive communication by the central bank certainly also has strong political motives. Many average earners are clearly feeling the impact of higher prices in the U.S. and the approval rate for Joe Biden's policy remains at a record low 40%. However, by raising its expectations for future interest rate hikes, the U.S. central bank is also giving itself further leeway to relax the reins somewhat in the event of a sharp deterioration in financial conditions or a slowdown in inflation momentum, even before the first interest rate hike has even been implemented. Currently, the market expects up to five interest rate steps this year. The sharply flattening yield curves, on the other hand, reflect the market's fears that a recession could be triggered if interest rate policy is tightened too quickly (see FOCUS).

Equity Markets

The stock markets declined significantly. The list of losing markets was led by the USA, in particular by the highly valued technology stocks (Nasdaq Composite), which corrected by more than 10%. Below the surface, a large number of stocks on the U.S. technology exchange Nasdaq have already corrected by more than 50% - the most since the great financial crisis of 2008. The Swiss stock market also trended weakly. Previously popular small- and mid-cap stocks came under greater pressure than the broader market (SPI Extra -7.5%, SMI -5.0%). Cyclical markets such as Spain and the UK held up better. Among the sectors, energy stocks bucked the trend and rose significantly thanks to renewed strength in energy prices.  The volatility barometer VIX temporarily reached 40 and the traded put to traded call options also implied a very high demand for hedging. The indicators jumped to values which were last observed in the pandemic year 2020. Investor sentiment thus deteriorated sharply, so that a countermovement is likely to be in the offing, at least temporarily.

Interest Rates

The futures markets are currently expecting up to five interest rate hikes to combat inflation in the USA (see FOCUS). The yield curve therefore flattened significantly again in January. The difference between two-year and ten-year U.S. government bonds is still around 60 basis points, although the U.S. Federal Reserve has not yet actually implemented any of the expected interest rate steps. In previous rate hike cycles, the yield curve was much steeper (in 2004, Greenspan, at 220 basis points, or in 2015, Yellen, 130 basis points). The risk of monetary policy tightening too tightly is therefore currently reflected by the market as a serious scenario. However, the Federal Reserve is sticking to the tightening cycle it has embarked on in its communications. The next meeting of the U.S. Federal Reserve will not take place before mid-March; until then, macro data on inflation and employment will be watched particularly closely.

Currencies / Commodities

The USD again benefited significantly on a broad scale from the rise in interest rate expectations in the USA. The EUR briefly slipped below 1.03 against the CHF before closing above 1.04 again at the end of January. The price of a barrel of Brent crude oil rose by 15%. Precious metals lost ground in view of the USD strength and rising interest rates.


After the devastating sell-off at the start of the year, the nervousness will subside in the coming weeks. We have completely unwound corresponding equity hedges, which we used on the basis of the overly greedy mood and weak market structure at the end of the year, towards the end of January. The panic in the market is currently creating the ground for a recovery lasting several weeks in the first quarter. Ideally, such a recovery will be accompanied by positive quarterly figures from companies: The first earnings reports have so far exceeded expectations for sales and profits. Geopolitical risks are currently more dominant. Objectively observed, we would currently not assume a military escalation on the part of the Russians, as this would probably be accompanied by the definitive next NATO expansion (Sweden / Finland) and would entail very painful sanctions for Russia.


Focus Market Forecast