I can dance, but only on the floor of the stock exchange

Dancing and music are one of those things… People say my hips are stiff and I have a poor taste in music. But I can live with that – I’m more a radio sort of guy: turn it on and listen. I don’t like everything the radio stations play, but I can wait. Wait for the next song.

There are several songs played on the stock market. Those who are critical might even call it a terrible racket. Right now it's "The show must go on" and soon it will be "This is it". In fact, it's just like listening to the radio: after a boring song, it's only a matter of time till the next hit comes along. You need patience, but I have to admit market cycles last longer than a DJ on the radio.


A glance at the last 12 years shows that Swiss investors have been spoilt. The Swiss Market Index (SMI) has posted an average annual performance of 7.6%. The S&P500 in the United States has even returned 12.5%. The main drivers of this were the central banks, which from 2009 onwards pumped several thousand billions into the markets to support the economy and keep the music playing.


But the central banks' show finished a number of months ago. Liquidity is being taken out of the market and benchmark rates are gradually rising, so the music in the economy is getting quieter. This was felt by every asset class in 2022. If you look at the performance figures from the start of the year, you will see that only commodities achieved a positive return. Surprisingly, both bonds and equities have put in a negative showing. This is remarkable and has only happened three times in the last 100 years: in 1931, 1969 and of course 2022. Normally, there is a negative correlation between bonds and equities, which diversifies portfolios and protects them. So portfolios made up solely of equities and bonds had one of the worst calendar years for a century in 2022.


Weakening economic growth isn't necessarily bad for the equity markets in the short term, though. I expect markets to remain volatile, but central banks will be keen not to see their monetary policy choke off growth completely. Hence the markets are assuming that they will stop hiking rates at the first signs of inflation slowing and focus once again on supporting the economy. Just remember the song: "Oops, I did it again!"


In the medium to long term, I'm sure that investing in the financial markets will pay off. It's not just the world population that will see strong growth in the next few decades – the world economy will too. This will create opportunities and drive megatrends. Don't worry if the short-term noise on the stock exchange gets too loud for you. If the worst comes to the worst, just do what I do: switch the radio off.