The market at a glance: Yesterday

“Yesterday, all my troubles seemed so far away" are the words with which Paul McCartney began his ballad in 1965, which later became one of the Beatles' most famous hits.  The BBC voted the song as the best of the 20th century, and the story of its writing deserves to be made into a book. However, we have chosen it to accompany this edition of our newsletter primarily for its lyrics. Markets sometimes like to “believe in yesterday”. Yet, April reminded us more of 'the day before yesterday'—tougher times.

If you recall last month's edition, we sensed that investors' enthusiasm was a bit excessive, and what happened in April is merely a consequence of that: turbulence. However, what is more interesting to dissect are the narratives that surrounded the markets' developments.

War escalation, inflation rising, discussions about interest rate hikes, pressure on commodity prices, and cryptocurrencies under scrutiny — the headlines had a taste of 2022. Not the kind of yesterday markets are longing for.

But before we succumb to pessimism, let's take a deep breath and see why there are also reasons to be confident.

Key takeaways

• Markets sometimes like to "believe in yesterday." Yet, April was more reminiscent of the day before yesterday with echoes of 2022.

• Global equity markets witnessed a significant retreat in April, with notable declines across major stock indices.

• Bond prices were down again – with inflation hotter than expected, the situation with interest rates felt like a never-ending lockdown.

• In the commodity markets, the mood was more upbeat, as it was gold's time to shine.

• The crypto markets seem to be paying the price for previous excesses, after seven months of uninterrupted growth.

• While shadows still hang over us, we believe in a better tomorrow.

What happened with equities

To paraphrase McCartney, since October, buying equities had been an easy game to play. But in April, investors needed a place to hide away with most equity markets declining. The US, Swiss, and Japanese markets fell more than 4%. European markets held up better in comparison, dropping by 3.2%, and for once, emerging markets showed more resilience than developed markets. The cold shower came from the inflation numbers in the US. Prices didn't decrease as quickly as expected.

As a reminder, measures of inflation aim to capture how prices evolve in different parts of the economy. Some prices are more volatile than others (for example, energy prices that are vulnerable to geopolitical shocks or supply chain disruptions), while others are supposed to be more stable (such as shelter and services). Central banks pay closer attention to the latter because their role is to ensure that essential goods and services remain affordable. And services and shelter remain elevated. When prices heat up, Central banks tend to act by raising rates. But this shock treatment is not without consequences for the economy, as it makes it more difficult for people and companies that need financing to access money. And that’s what investors worry about.

The good news is that, with a sense of déjà vu from 2022, companies are still growing. As we write these lines, companies are reporting their earnings and, on average, growth is there. Broader economic measures, like GDP, also confirm that higher interest rates and inflation have not yet ruined the economy's health.

What happened with bonds

The picture was similar on bond markets in April. The prospect of higher rates for longer didn’t rejoice bond investors. And you know the drill…when rates go up, bond prices go down. The situation with interest rates is reminiscent of a lockdown that never ends. At the start of the year, buoyed by optimistic signals from central banks, investors expected six rate cuts throughout the year. However, as higher inflation figures persisted, these expectations were adjusted downward, and by April, some investors were even predicting rate hikes. This scenario was dismissed by Jerome Powell, the chairman of the Federal Reserve but higher rates are still now on the menu. From our perspective, the outlook for the fixed income markets isn't as grim. For the markets to perform well, we don't necessarily need rate cuts—although they would ideally boost bond prices, provided they aren't coupled with bad news. As long as there are no further rate hikes, we can still enjoy the benefits of attractive yields on bonds.

What happened with commodities, currencies and digital assets

In April, the geopolitically tense environment continued to boost commodity prices with energy prices rising and gold delighting its fans.

The dollar also continued its ascent versus the Swiss Francs.

On the crypto side, though, the mood was down. After 7 consecutive months of positive returns, bitcoin declined and most other cryptocurrencies followed. The enthusiams was ruined by lower activity levels, a Bitcoin halving event that turned out to be a non-event, and tougher stance from regulators (the former CEO of Binance, the largest crypto exchange was sentenced to 4 months of prison for breaking anti-money-laundering rules).

To summarise, April was not a great month for investors, and they are longing for yesterday. But are troubles here to stay? The shadow of inflation is still likely to hang over us for sure, and with it the prospect of higher interest rates for longer. However, we remain optimistic about the future, even if turbulence continues. This market correction seems more like a hangover after months of excesses. As long as the economy manages well, we have reasons to be confident.

Demystification room: Gold

Did you know that 2/3 of gold extracted worldwide is actually physically or digitally transiting through Switzerland and a big part through Geneva and Ticino?

In addition to its strategic location and favourable financial environment, Switzerland's role as a global gold hub is further underscored by the presence of major refineries and trading companies within its borders. A significant portion of the world's gold transits through Geneva, where many of these refineries and trading firms are headquartered. This concentration of industry expertise and infrastructure enhances Switzerland's position as a key player in the global gold market, reinforcing the attractiveness of Geneva as a preferred destination for gold transit and storage. Investors considering gold as an investment should factor in Switzerland's pivotal role in the gold supply chain, along with other relevant considerations, when making investment decisions.

Gold has long been regarded as a valuable asset and a hedge against economic uncertainty and inflation. Its limited supply, enduring interest from investors, and universal acceptance as a form of currency have made it an attractive investment option for individuals and institutions alike. In times of geopolitical turmoil or market volatility, gold often serves as a safe haven, providing investors with a sense of security and stability amidst uncertainty.

However, like any investment, gold carries its own set of risks. One primary risk is its susceptibility to price fluctuations driven by changes in supply and demand dynamics, macroeconomic factors, and investor sentiment. Additionally, gold does not generate income like stocks or bonds, meaning its value relies solely on price appreciation, which may not always keep pace with inflation or other asset classes. Furthermore, the cost of storage and insurance can erode returns, particularly for physical gold holdings.