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Equity markets gained new momentum after a September characterized by volatility and setbacks. Despite a variety of uncertainties such as high energy prices, supply chain shortages and inflationary pressures (see Focus), optimism returned to the markets. So far, the third quarter earnings reporting season, which started in mid-October, has been positive. Around half of the companies in the S&P 500 have now published their results. Depending on the sector, earnings significantly exceeded expectations (energy, financials, healthcare). Profit and sales growth is a good 38% and 17% respectively. In Europe, impressive growth rates were achieved to a comparable extent, even if the surprise rate was somewhat lower. The Evergrande Group in China avoided default for the second time in October. Various Chinese government agencies have indicated that the risks to the economy and the financial system surrounding the real estate giant can be contained and controlled. Positive U.S. retail sales and a surprising increase in the purchasing managers' index for the service sector have positively underlined the economic outlook. However, U.S. GDP grew by only 2% in real terms in the third quarter (annualized projection), while inflation remains above 5%. On the interest rate front, strong inflationary pressures have eased in tandem with declining commodity prices. Accordingly, yields on 10-year Treasuries have been trending downward since the middle of the month.

Equity Markets

Equity markets started to recover after a weak September. In the USA, the main indices reached new highs. The price gains were strongest in the USA with +6.9% for the S&P 500. Among the sectors, energy and consumer discretionary were among the winners with gains of more than 10%. A lack of capacity should continue to support energy prices, which is why we continue to like the energy sector. Among the tech giants, supply chain bottlenecks are being felt to a greater or lesser extent depending on the business model. Apple and Amazon.com disappointed investors with their outlook and published quarterly figures, while Microsoft and Alphabet, which are focused on software and services, significantly exceeded expectations. Volatility fell back to low levels (VIX at 16.3) and investor sentiment improved accordingly. In Europe, gains were slightly lower, ranging between 2.5% and 5%. The CSI 300 in China gained just 0.9%, while the Shanghai Composite was in the red at -0.6%.

Interest Rates

Rising energy prices, supply shortages and pandemic-related pent-up demand continue to drive inflation expectations. In Europe, these reached their highest level since 1993, while consumer prices in the USA rose by 5.4%, the highest level in 13 years. Producer prices in China rose by 10.7%, marking a high since the mid-1990s. The combination of higher inflation, declining growth at a high level, impending cuts in expansionary monetary policy and expectations of the first interest rate hikes in the USA at the end of 2022 caused short-term interest rates to rise sharply. However, long-term nominal interest rates have been trending slightly downward again in the past two weeks. After yields on 10-year US Treasuries briefly rose to over 1.7%, they are currently trading below 1.6% again. As a result, the yield curve has recently flattened somewhat. The pandemic-related forces which brought supply and demand into an imbalance are likely to ease in the coming months, and inflationary pressures will therefore also weaken. Despite the increase, yields on ten-year Swiss government bonds remain in negative territory at -0.08%. Their German counterparts are trading at -0.11%. However, real yields are likely to remain in deeply negative territory for a while (Switzerland -0.6%, USA -2.5% for ten-year maturities), which is why bonds remain less attractive overall.

Currencies / Commodities

The subsequent effects of the corona shock continue to be felt. For example, oil prices have continued to rise (WTI +11.8% and Brent +7.9%), while gas prices have gradually come off their highs. The energy crisis is likely to keep us busy for a while - but we doubt that the strong price increases of the past months will continue to the same extent. However, this assessment is offset by geopolitical risks, a lack of capacity and pandemic-related developments (labor market, consumption, etc.). Among metals, gold (+1.5%), silver (+7.8%) and the widely used industrial metals copper (+6.2%) and nickel (+8.4%) shone.


Looking ahead to the end of the year, we are in a positive mood. The negative surprises in the economic data and the imbalances in supply and demand should soon be behind us. The corona-induced catch-up effect among consumers, coupled with higher capital spending by companies as interest rates remain low, are supporting growth. According to our assessment, equities are to be preferred over nominal assets. Our focus is on quality stocks in the technology, industrial, healthcare, energy and financial sectors. The USD should continue to weaken, while the EUR should tend towards strength. We maintain a high CHF allocation.