The market at a glance: Homeward bound

Summer has arrived, though not quite as we expected—with rain and flooding affecting many parts of Switzerland. We hope you're staying safe and dry! Despite the weather, June has brought significant developments, including the Swiss National Bank's recent interest rate cuts. In this issue, we'll analyse what these changes mean for the markets.

Internally at Alpian, this June we've worked to introduce a few exciting new features designed to enhance your financial well-being. From virtual cards to our new partnership with American Express to offer you the Platinum Card with special conditions, we're committed to continuously improving your banking experience. While you unwind this summer, rest assured that we're working tirelessly to make banking better for you.

Now, let's dive into the latest market updates and see how these changes could impact your investments!

The market at a glance: Homeward bound

“Ladies and gentlemen, this is your captain speaking. We’ve just been cleared to begin our descent." That's probably what many of us will be hearing soon as we prepare for a well-deserved summer break. It is also the discourse central banks have been adopting lately.

Interest rates are losing altitude. In June, the Swiss National Bank lowered rates for the second time, and the European Central Bank joined the club of central banks initiating interest rate cuts. After a long journey away from normal levels, many investors feel impatient to see monetary policies becoming more accommodative again, a bit like a traveler longing to get home and gazing out the window to see familiar landscapes.

The iconic folk rock duo Simon & Garfunkel perfectly captured that feeling in their 1966 song "Homeward Bound," which we've picked to accompany our newsletter.

But what is "home" exactly in financial markets? What is this place that investors are longing for and central bankers are striving to take us to?

Historically, rate cuts haven't always rhymed with good news. And we can also sense that the pressure that has been applied by higher rates on the economy will leave some marks. Can we reach an ideal state where interest rates are at equilibrium, and economies, neither too hot nor too cold, grow steadily?

Well, equilibrium in markets is a bit of a chimera, but it doesn't mean we should be overly worried that bad things are waiting for us at the next stop. First, let's look at how markets behaved in June as the descent started.

Key takeaways

• Interest rates are losing altitude. After a long journey away from normal levels, has the journey back home started? (If there is such a thing as home in financial markets.)

• Bond markets are welcoming the lower rates, making June a rather good month.

• On the equity markets, the results were more mixed. While elections cast uncertainty on European markets, U.S. markets were up, driven by the promise of AI.

• The Swiss Franc depreciated against the dollar and Euro towards the end of the month after the SNB decided to cut rates.

• Cryptocurrencies struggled to find reasons to continue their ascent.

What happened with equities

Equity markets closed the month with mixed results. In the U.S., green dominated. After reaching a new high, the S&P 500, the leading American stock index, ended the month up by 3.5%. Tech stocks once again led the charge, with investors seemingly convinced that AI can continue to deliver infinite gains to their portfolios.

In Europe, the mood was different as the effects of elections started to weigh on equity markets. Overall, European markets were down 1.8%, with the French market plunging 6.8% after President Macron dissolved the National Assembly and called snap elections. In the U.K., voters will head to the polls in July. However, the markets have grown accustomed to political drama, especially after Brexit and the short crisis that shook the pension system in 2022. Consequently, with the stakes appearing less high this time, we see fewer market reactions.

How was the mood in Asia? Japanese equities continued to delight investors, but Chinese markets gave back the gains from last month. Finally, in Switzerland, our national index, the SMI, ended the month flat at 0%. Perhaps Switzerland’s tourism can use our stock market for their next "no drama" marketing campaign.

What happened with bonds

It was a good month for bond markets overall. Central banks are leaning towards more accommodative monetary policies, and lower rates mean higher bond prices. As inflation continues to recede in most parts of the world, we have seen several central banks starting to cut rates.

Leading the way was our very own Swiss National Bank, which decided to move rates from 1.50% to 1.25%, the second cut this year. Good news for borrowers, bad news for savers. In our view, policy rates at these levels offer a good compromise. Mortgages become affordable again, and savings are still decently remunerated. We must say we are still a bit surprised by the pace at which the SNB is cutting rates. Why this sudden urgency? Are the "adverse effects of higher interest rates and subdued global economic growth" starting to become too visible in several segments of the Swiss economy (to quote the Financial Stability Report 2024)? For sure, there are cracks appearing in the real estate and credit markets.

This month, the European Central Bank also followed suit by cutting rates for the first time this year, which should provide relief to portfolios navigating through political changes.

In the U.S. and the U.K., central banks have maintained the status quo for now, delaying action out of concern for influencing the election agenda. But the direction of travel seems clear.

What happened with commodities, currencies, and digital assets

In June, the situation in the commodity markets was the exact opposite of May's. Oil gained 6% despite weakening demand. Gold has been trading sideways for almost three months now, and industrial metal prices are spiralling downwards.

After a strong beginning of the month, the Swiss Franc lost ground against the dollar and the Euro, pushed by the SNB's decision. Where is it heading next? That's probably the question many Swiss are pondering as they prepare for the summer holidays. Will they enjoy even cheaper prices abroad? Well, the electoral agenda in Europe and the Fed's wait-and-see attitude make the outlook quite inauspicious for forecasters (which we are not, anyway).

Finally, on the digital markets front, we can't really say June was a good month. Bitcoin was down 11%, and other altcoins tumbled. It seems that the good news which pushed prices higher in the first quarter have been digested, and investors are now looking for new catalysts to believe the price could go higher. As always with cryptocurrencies, the road is a rocky one.

To conclude, June was a mixed month for investors. As it seems we are entering a new market phase after months of high rates, let's hope for a smooth descent and a soft landing.

One thing to keep in mind is that while rate cuts may give investors one less reason to worry, it also means that we will need to find new reasons to believe markets can go higher.

The good news, as we've been repeating over the past months, is that different parts of the markets will react differently to rate cuts, and it is our chance as investors to take advantage of diversification. Home might be in sight, but let's not unfasten our seat belts too soon.

Money Mixtape: Your 5-minute financial podcast!

Love the musical format of our market updates? Tune in to “Money Mixtape” on World Radio Switzerland—a 5-minute show every Monday at 08:45 am that mixes finance with music for fresh, valuable financial insights! Here are this month's episodes, each just 5 minutes—listen and learn!

Episode 1: Your checklist for finding a new bank

In light of Flowbank's collapse, learn the essential criteria for choosing a reliable new bank. Listen here.

Episode 2: Maximising your pension contributions - Pillar 2

Understand how to optimise the second pillar of the pension system to secure your financial future. Listen here.

Episode 3: Maximising your pension contributions - Pillar 3

Explore strategies to make the most of the third pillar of your pension system for maximum benefits. Listen here.

Episode 4: The real cost of investment advice

We trust our hard-earned money to financial markets, seeking good advice and solid returns. But how much does this advice really cost? Listen here.

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Interested? Give it a try directly in the app or even better: treat yourself to a free consultation with a wealth advisor to discover which investment solution the best match for you to get started.

The story of how "Managed by Alpian" outperformed competitors

This is the story of us, but mainly, of the clients we're privileged to represent in managing and executing their portfolios. Our goal is to provide the same high-quality services as private banks, but with greater accessibility and transparency. "Managed by Alpian," our discretionary investment mandate, is the cornerstone of this vision, designed to deliver robust, long-term investment strategies that truly benefit our clients.

For 18 months, we knew our performance was good, but we didn't know how good compared to our competitors. So, we joined Performance Watcher, a network to benchmark our results against the best in the Swiss asset management industry. The surprise arrived: a balanced* "Managed by Alpian" strategy achieved a 12.20% return, significantly outperforming the 9.09% return of the Performance Watcher mid-risk index.

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Disclaimer: Source: Alpian, Performance Watcher. For informational purposes only. TWR performance, net of fees, calculated over the period from 31/12/2022 to 20/06/2024 for the Alpian Balanced composite, which represents the average performance of all discretionary portfolios managed by Alpian with 40% to 60% equities. Individual investment returns may differ due to a variety of factors, including but not limited to, the date of investment and the investment strategy employed. Past performance is no guarantee of future results. Results may vary. This post constitutes marketing material.