June General Market Comments

« Driver’s Seat » – Sniff ‘n’ the Tears, 1978

AI, Big Tech and consequently the Nasdaq are in the driver’s seat in 2023. They’ve set the pace for what is, so far, a very good year for global equity markets, notwithstanding the immense performance gap between sectors and styles: to wit, the MSCI World Growth is up 26.5% at the end of June, versus only +2.5% for the MSCI World Value.

June 2023 saw, from the middle of the month, some kind of marginal rebalancing: upside participation has been a tad broader than previously this year, which is healthy (the S&P 500 and the Nasdaq ended up the month with almost exactly the same performance, slightly below +6.5%). This is also logical because interest rates were not supportive of expanding valuations last month: the US and German 10 year yields respectively rose 19 and 11 bps.

In the meantime, Credit was up again (+2% for the Itraxx Crossover in June, +7.6% year to date), Gold lost ground (-2.2%) as well as the dollar versus the euro. Currency markets have also shown some large moves this year, as the euro is up 1.9% versus the dollar, but the most impressive is the Japanese Yen fall (-10.1%) and, to a lesser extent, the Chinese Renminbi (-5.2%). The spectacular 21% upside in the Topix finally “only” translates into a +10% return year to date in USD.

Markets seems to tell us that the Fed will succeed in engineering a soft landing in the US, especially if upside participation broadens; markets often lead fundamentals, so this should be viewed as good news. What remains unclear is the capacity for valuations, and in particular for the most hype sectors, to stay at these levels.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

May General Market Comments

“Steamy Windows”, 1989 – A tribute to the legendary and immortal Tina Turner.

Trying to decipher the messages sent by economies and markets feels like trying to guess what lies behind steamy windows; you have an idea, but it’s not precise. Not more than 1 year ago, consensus was that a recession was inevitable in Europe and highly likely in the US, whereas it’s far less certain today; meanwhile, if not done yet, the Fed seems close to end its hiking cycle. China reopening should have triggered a massive boom for its equity market and commodities, but it hasn’t. Debt ceiling fuzz saw the dollar rise while the last minute deal, avoiding a default, has been followed by dollar weakness. Beyond an unclear short term horizon, two gigantic long term investment cycles still prevail: Digitalization and Cleaner Energy.
The crazy hype around AI and Nvidia shouldn’t make us lose sight of the fact that there will be profound consequences in terms of productivity with the widespread use of AI.
May 2023 was one of these very complicated months for equity investors who, if they were not exposed to the happy few rising stocks, had good reasons to be frustrated; the S&P 500 was almost flat, but it would have significantly been down without the contribution from mega-IT components who, besides the S&P, propelled the Nasdaq 100 7.6% higher. The absence of IT behemoths has cruelly been felt by Europe and Emerging Markets (down 3.2% and 1.9%), while Japan rose (+3.6%) with a weak JPY. Growth unsurprisingly humiliated Value (+2.3% vs -5.0%), while the strength of the dollar weighed on the MSCI World, which ended up the month down 1.3%.
Fixed-income was mixed: US 10 year yield rose 22 bps, Germany was stable and Italy, a good gauge of risk aversion, saw its 10 year benchmark yield fall by 9 bps. Credit enjoyed another very good month (+0.7% for the Itraxx Crossover), while all commodities plummeted: Oil down 11.3%, Gold down 1.4% and the broad CRB Index down 5,3%.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

July General Market Comments

« Whose Side Are You On? » – Matt Bianco, 1984

Are you on the optimists’ or the pessimists’ side? Or rather on the side of those who have no idea?

So far, 2022 tends to plead in favour of the pessimists, but optimists could argue that July 2022 was the best month for the S&P 500 since November 2020 (when Pfizer-BioNTech announced they had a vaccine against Covid), and those who have no idea could point out that finally markets were roughly flat for June-July 2022, as June was a dreadful month.

There are many things to factor in, and all of them give arguments to one side or another: inflation is high, but expected to normalize, especially since Central Banks seem keen on tackling it rapidly; geopolitics are a mess with not only the conflict between Russia and Ukraine, but also the heightened tensions between the US and China regarding Taiwan; corporate and private debt does not seem to be a source of problems today, but Government debt across developed markets is immense; earnings reports have been surprisingly good so far, but they are expected to slow down significantly going forward; commodities do not move in sync, but there seems to be a growing threat from Russia about gas deliveries in Europe for this winter, triggering skyrocketing gas prices. With all this happening at the same time, it is not easy to choose your side and it’s not surprising to see numerous experts change their minds, depending on the most recent events.

Buoyed by convincing earnings releases and some more risk appetite, equity markets soared in July: the MSCI World gained +7.86%, the S&P 500 +9.11%, the Nasdaq +12.55%, the MSCI Europe +7.52% and the Topix +3.71%. The only detractor was Emerging Markets, down 0.69%. As nominal and real yields fell, Growth outperformed Value with a +11.51% return for the MSCI World Growth versus +4.44% for its Value counterpart.

In such a risk-prone month, Credit also rose (+3.06% for the Itraxx Crossover), and Government yields fell (-36 bps for the US 10 year, -52 bps for Germany); Gold and Oil receded by 2.29% and 6.75% respectively, and the Euro fell further against the dollar (-2.51%), weakened by the possible looming energy crisis in Europe and an unfavourable interest rate differential.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group