Equities: High expectations
Equity markets have remained remarkably resilient despite geopolitical tensions and rising interest rates. Corporate earnings remain the key driver. Particularly earnings expectations in the United States continue to be elevated and provide important fundamental support for markets.
However, as share prices have risen, so too have expectations. US equities continue to trade at a significant premium to other regions, while higher bond yields reduce the relative attractiveness of equities. As long as earnings continue to grow strongly, this remains manageable. The market is likely to be considerably less forgiving of disappointments in growth or margins than it was only a few quarters ago. At the same time, opportunities are broadening. Europe is benefiting from improving earnings expectations and investment in infrastructure, defence and energy. A number of emerging markets are also showing rising corporate earnings combined with more attractive valuations. Parts of North Asia in particular continue to benefit from the sustained investment cycle in semiconductors and technology.
We remain constructive on Swiss equities. Solid balance sheets, strong capital discipline and attractive dividends provide stability in a more demanding market environment. In addition, valuations have become more attractive again relative to international markets.
For the coming months, we remain broadly positive but have become more cautious. Following the strong market performance, the balance between opportunities and risks has become less attractive. High valuations, rising interest rates and geopolitical uncertainty leave little room for disappointment. Quality, valuation and sustainable earnings growth are therefore key. After strong years for equities, preserving what has been achieved is becoming more important than chasing the last percentage point of performance.
