An annual outlook usually begins with a forecast of economic development. As early as 1969, the Philadelphia branch of the US central bank began compiling economic forecasts from economic researchers at universities, banks and other financial service providers and compiling them into a time series. Unfortunately, these forecasts were almost never accurate. Something similar can be observed with share forecasts. Take 2022, for example: when economic forecasts in the fourth quarter were more pessimistic than ever before, equity professionals predicted a negative performance of the US S&P 500 share index for the first time since 1999. Anyone who followed this forecast had to forgo gains of over 20 percent.

However, forecasts can actually be derived much more reliably from other sources. A good indication of further developments in the USA, which we can already observe today, are, for example, the inverse interest rate structure, a decline in the volume of credit issued, an unemployment rate above eight percent and the pessimism of US purchasing managers. They all indicate that the USA is on the brink of a recession. The growth rate of the M2 money supply, which has fallen by six percent since its peak in April 2022, shows a similar picture. So far, such a decline has only occurred four times and each time was followed by a severe recession. We therefore assume that the US government will not be able to maintain this massive debt policy for much longer and that a new government, which will be elected on November 5, 2024, will have to become more frugal and trigger the long-overdue recession.

Similar trends to those in the USA can also be observed in the eurozone. The economy there is also facing a recession, triggered by a sharp contraction in the money supply. A look at China also shows that direct investment from abroad has collapsed. Investors therefore have a rather negative view of the further development of the Chinese economy, which leads to the conclusion that it will not be able to support the crumbling US or European economies either.

As a result of these recessions, a change in interest rates will have a significant impact on the performance of shares worldwide. For some years now, equities have again been heavily dependent on interest rate movements. However, as our forecasts show, the extent to which individual stock markets are affected differs significantly depending on the region. US equities, for example, are significantly overvalued as a result of the recent boom following the AI bubble and are unlikely to yield any returns over the next ten years. However, they are relatively alone in this respect. Swiss equities are 44% cheaper and German equities are even 60% cheaper, although earnings performance since the end of 1999 has hardly been worse than that of their US competitors.

To summarize, we can therefore say that the US is heading for a recession, which should subsequently lead to lower interest rates. As low interest rates have a positive impact on equity prices, this will lead to massively positive performances for non-US equities, while US equities may continue to perform positively until the end of 2024. Other asset classes will also gain, including private equity and gold, as the disadvantage of gold not earning interest will be reduced by a reduction in interest rates. Only bonds will become less attractive due to the interest rate trend.

Capital market outlook