The dominance of a few US companies on the global equity market has reached new extremes in the past two months. A passive, supposedly global equity investor now invests 70% in the US, and the seven largest companies there account for 20% of market capitalisation.
These impressive share price increases are underpinned by corporate profits - estimated profits of USD 400 billion are expected for 2024, compared to USD 80 billion for the Swiss Market Index. Nevertheless, we expect earnings momentum in the US IT sector to slow from 50 per cent to 20 per cent over the year as a whole in the second half of the year.
Game shift from US technology to the eurozone
The "European champions" play in several positions: In addition to IT, pharmaceuticals, cyclical consumer goods such as luxury goods, basic materials and banks are among the key sectors. The almost euphoric mood, fuelled by little hedging, high equity allocations and a concentration on a few stocks, is also prompting us to reduce our equity overweight. We continue to favour Switzerland and the emerging markets.
However, our expectation of a further decline in inflation argues against a significant reduction in risks. This scenario would support the easing of interest rates that has been initiated in some countries. In this environment, we expect above-average returns from government bonds.