Grimaldi & Partners: Market Outlook Late Summer 2022

By Silvano Grimaldi , CEO Grimaldi & Partners 

Zurich – Are the lows on the stock markets behind us after the recent recovery? What price movements can be expected in late summer 2022? Can investors hope for a conciliatory end of the year? Silvano Grimaldi, CEO of the independent asset management company Grimaldi & Partners AG, provides answers to these questions.

Massive news flow, capital markets and investor reactions
Experience has shown that massive falls in the price of stocks and bonds tempt many investors to spontaneously react  to the composition of their portfolios. But even in the event of a “bond crash” or a “stock market bear market”, investors should first try to clarify a number of decision-relevant questions before restructuring their portfolios. It is therefore important to note which of the information that is constantly arriving and constantly being priced in by the capital markets is also actually relevant to decision-making for long-term investors.

Monetary Policy Responses to Rising Inflation
Rates There is no doubt that the declines in prices over the past few months are due to a number of different factors  . In addition to the war in Ukraine  and the effects of the Chinese zero-Covid policy on the growth of the global economy, developments on the capital markets are currently being shaped above all by the reactions of the central banks that have already taken place and are still to be expected. With the exception of the Bank of Japan, all major central banks have adopted or announced a restrictive course due to the significant rise in inflation.

Is a global economic recovery in sight?
One of the key factors  for a sustainable recovery in share prices is certainly – in addition to investors' inflation expectations – above all the assessments of the expected macroeconomic developments.

In addition to the USA, the quantitatively most important contributions to growth for the global economy come from China. The announced fiscal stimulus  could lead to a return of the Chinese economy to the growth path targeted by the government at the beginning of the year.

In the  USA, private consumption and private investments are currently supporting nor overall economic growth. A recession is not to be feared, at least as long as the central bank keeps an eye on the risks of sharply and rapidly rising key interest rates and  limits itself to a "soft landing". The US Federal Reserve  will initially stick to further interest rate hikes in order to maintain its credibility. With a view to the then current economic development and in particular to the labor market, however, it will have to take  a break by autumn of this year at the latest.

European countries  will feel the economic impact of the Ukraine crisis more than the US. In the euro zone, the high prices for energy source imports will affect private consumption in particular. The overall economic growth rates will therefore also gradually decline in practically all countries of the euro zone.

Switzerland  is likely to achieve a GDP growth rate of around 1.5 percent in 2022, despite the expected further interest rate hikes . It  is not yet possible to quantify the effects of the interest rate hikes on later economic developments.

Bond prices: have they bottomed out yet?
Bond and stock prices reflect the rise in interest rates. Bonds  have therefore become a little more  interesting again, but without really being worthwhile.

However, bond prices will  only reach their low point when successively falling inflation rates and the resulting falling inflation expectations no longer require increases in key interest rates.

Earnings expectations and stock markets
The rising interest rates and the economic downturn have already made the valuation of shares more attractive again. Only a long-term investment horizon promises success. Patience is required. Companies with strong market positions do not have to fear any loss of margins. Because of their products, delivery capabilities, etc., these companies will continue to be able to generate the profits necessary to pay dividends and therefore remain attractive to investors. Dividend payments are and will remain crucial to the total return of an investment in stocks. Stocks from the pharmaceutical, medical technology, specialty chemicals and luxury goods sectors should be preferred. Selective investing will become even more important than it has been up until now. Investing in funds that track broad stock indices depict, should not be made if possible.

How the stock markets develop in the coming weeks depends on whether there is no  severe recession or whether inflation rates fall  faster than market participants currently expect. Only then will share prices recover quickly and significantly. In the longer term, the upward trend always prevails on the stock markets. Losses in share prices, which in any case are less important for stock returns than dividend payments, are made up for and investors are rewarded for their patience. (Grimaldi & Partners/mc/ps)

© 2022, Grimaldi & Partners AG

GRIMALDI & PARTNERS  Vermögensverwaltung is a renowned independent Swiss asset manager domiciled in the city of Zurich. The main bearers Silvano Grimaldi, lic.oec. HSG and Dr. iur. Reto A. Lyk are distinguished former bankers with an excellent reputation and more than 25 years of professional experience in asset management in the Zurich financial center. The top-class management team ensures flawless management of the business for the benefit of the customers. Grimaldi & Partners stands for independent, neutral, transparent, cost-conscious, performance-oriented asset management with better asset protection.

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