As rising interest rates are expected to continue to put pressure on technology stocks, we are reducing the sector to ‘underweight’. In the area of fixed income securities, long-term interest rates should continue to rise, but at a slower pace than that observed since the beginning of the year.
LGT Private Banking Europe House View
The new trading year is only a few weeks away, but we have already seen major setbacks in global equity markets. The US stock market has lost more than 10% from its all-time high and is therefore in correction territory. The main reason for the very volatile start to 2022 is the
Already seen 2018?
Markets during a Fed rate hike cycle
There have been nine interest rate hike cycles in
New clouds on the horizon
Over the past two weeks, uncertainty in financial markets has increased again. On the one hand, the
The first few weeks of trading could be a harbinger for asset allocation in the months to come, as the two most important asset classes, equities and bonds, came under pressure at the same time. For example, ten-year government yields rose not only in the United States (+27 basis points), but also in the euro zone (+11 basis points), the
Keep the powder dry – “don’t buy the dip”
For several quarters, we have been betting on quality in all asset classes. This has not changed after the recent fix. In a market environment characterized by a withdrawal of liquidity, quality is more than ever sought after. This prompted us to take a little less risk in our investment strategy and to keep our powder, or liquidity, dry. During the month, we therefore downgraded US equities to “neutral” and reduced the technology sector to “underweight”. With the Fed’s monetary policy creating headwinds, corporate America is feeling the effects disproportionately. Caution is advised for companies that are barely making a profit and whose stock has lost 50% or more of its value in recent months. Until we have more visibility, we recommend pausing the ‘buy-the-dip’ strategy. In the short term, we advise to stay on the sidelines and increase liquidity. Accordingly, we are redefining the liquidity ratio to “overweight” and the capital ratio to “neutral”.
Equities: huge differences favor selection
The start of the year signals that stock market yield differentials will be huge in the year 2022, not only across sectors and industries, but also between regions and countries. Therefore, in our view, the most important success factor for equities remains selection, especially in terms of relative performance. We continue to favor consumer staples, the materials sector and European financials.
Fixed income: upward pressure persists
The rise in long-term interest rates has been considerable. We expect this rise to continue at a slower pace and the upward pressure to continue. The only exception we see is if investors take refuge in government bonds due to further severe losses in equity markets. This remains our risk scenario. Within the bond quota, we focus on short duration and continue to view hybrid bonds and Asian high yield bonds as attractive.
LGT helps you make informed investment decisions
Everything about global economic and market trends at a glance
Subscribe to LGT research newsletters
You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting feature articles. If you have any questions, a bank advisor will be happy to help you.