Price corrections and downturns have always been part of the stock market experience, and cannot be predicted. During periods of market turbulence, the important thing is not to lose focus on your personal investment horizon and to avoid panic selling.
The second quarter also delivered strong returns for equities and bonds. Following the significant rally in share values over the last nine months (+25% globally), we expect single-digit returns for equities in H2 due to rising corporate profits and impending interest rate cuts. The spotlight is on the cooling earnings momentum in the US IT sector and Europe’s race to catch up with the US economically. However, the almost euphoric mood – fuelled by a low amount of hedging, high equity ratios and a concentration on a small number of stocks – is a warning to exercise caution. We are shifting our tactics towards more defensive sectors with more favourable valuations. Due to the recent decline in inflation, we expect further interest rate cuts and therefore see upside potential for global government bonds.
Last updated: July, 2024
Crises and market corrections have always been part of economic life. They happen every now and again at irregular intervals. It is also impossible to predict how far share prices will fall and how long they may take to recover. A glance at history shows that crises are usually followed by longer periods of recovery. For example, after the 2008 financial crisis the Swiss Performance Index (SPI) only returned to its pre-crisis level in 2013. In the case of the recent shock caused by the corona pandemic, prices recovered within just a year. So you can sit tight and wait out any crises, because time is on our side.
Please note: As a general rule, the longer your investment horizon, the higher your equity allocation can be. Therefore, the shorter your investment horizon, the less risk you should take.
Daily financial reporting can lead to us losing sight of our long-term investment horizon and focussing too much on the short term instead. In each case, there is a wealth of information that speaks either for or against an investment. No one can predict with certainty what will happen to prices in the next few trading days. However, it is likely that over time the economy will recover and that the market turbulence will be evened out.
frankly Tip: Therefore, you should focus on your personal investment horizon. The longer this is, the higher the probability of attractive potential returns.
Falls in share prices and the resulting losses can create major doubts and lead to panic selling. This is understandable, since no one likes to watch their hard-earned assets lose value. However, getting out now is probably not the best idea even if your instincts are telling you to do so. If you sell during a price slump or switch from a high-risk to a lower-risk investment strategy, you run the risk of missing out on the recovery or not sharing in it to the same extent. Getting out of the market early out of a fear of falling prices is also not recommended for the reason that an all-time high does not necessarily have to be followed by a market correction.
It’s not just when you buy that’s key, but also how long you hold on for. In the past, the gains on the stock market were achieved on a relatively small number of trading days. If you miss these crucial trading days, it will hold back your performance in the long run. Remember, it’s how long you stay in the market that matters!
frankly Tip: Getting in and out at exactly the right moment is a pipe dream. This is why we recommend paying in your planned annual pillar 3a contribution on a staggered basis and investing it, e.g. by standing order. This will smooth out the cost price and stop you from letting your emotions get the better of you.
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© Sparen 3 pension foundation of Zürcher Kantonalbank
and Vested Benefits Foundation of Zürcher Kantonalbank
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