Monetary policy to give way to fiscal policy

What are the main trends we can expect on the macroeconomic front in 2024?

Norman Villamin: With elections taking place in various countries in 2024, particularly the United States, central banks will have to choose between fighting inflation and loosening their monetary policies. The pause in rate hikes that started in late 2023 should help facilitate industrial transformation and support economic growth. In 2024, we will move from a period in which the discussion was dominated by inflation fears to one in which the focus will be on government budget measures. In other words, monetary policy will give way to fiscal policy.

Should we be concerned about a debt crisis in 2024, particularly in the United States?

N.V.: Obviously, there is a huge amount of debt around the world, and it’s continuing to grow. In the US alone, the interest paid by the Treasury is likely to rise to 4% of GDP and equal 22% of tax revenues by 2028. When governments have a large amount of debt, there are three possible outcomes in theory: they can default, restructure their debt, or pay it off. One thing about debt is that it doesn’t grow in nominal terms. The amount you have to pay back is the amount you borrowed. So higher-for-longer inflation is helpful for governments in terms of repaying their debts.

If Donald Trump returns to power in the November 2024 election, would this mean the US government tightening its fiscal policy?  

N.V.: I don’t think so. On the economy and inflation, Donald Trump and Joe Biden’s policies are more or less the same. Will Donald Trump end the measures put in place as part of Joe Biden’s Inflation Reduction Act? Definitely not! 80% of investment taking place under the IRA is going to states dominated by the Republicans.

How do you explain the early December rally in the gold price, and how do you expect it to move going forward?

N.V.: The rally must be seen in the context of a world of higher inflation. Although nominal inflation has fallen recently in most Western countries, that should not make us forget that the money supply is continuing to grow in many countries. The Bank of Japan is printing money and injecting it into the system. China is doing the same to stimulate its economy. Although inflation is falling, growth in the money supply is the factor that has the greatest influence on gold demand. In many countries, there are investors looking for an alternative to the dollar for part of their investments. As regards actual buyers, demand is coming from countries referred to as being part of the Global South.

Many people are concerned about the stratospheric valuations of some tech stocks in the US. What is your opinion on this?  

Eleanor Taylor Jolidon: Some US tech stocks are indeed trading at very high levels. However, valuation multiples have fallen, because earnings per share (EPS) have risen. This shows that investors might not be prepared to pay a big premium for these stocks, because they are not expecting current rates of EPS growth to continue in the future.

For example, Nvidia was trading at around 60 times earnings at the start of 2023 but ended the year with a P/E ratio of around 25x. So sometimes you need to put US tech stocks’ very high earnings multiples into context. Also, particularly as regards stocks buoyed by the artificial intelligence (AI) theme in recent months, investors will need to be careful and highly selective in the next few months. They will want to see concrete results from generative AI in 2024: they will no longer be satisfied with mere promises.

What are you expecting in terms of earnings growth from Swiss stocks in 2024?

E.T.J.: Overall, we expect Swiss equities to deliver earnings growth of around 7% in 2024, although this doesn’t take into account UBS’s potential earnings, on which visibility is very low for obvious reasons. Coupled with a dividend yield of 2%, this could lead to a potential total market return of 9% for Swiss equities in 2024. 

In 2023, the share prices of several pharma companies, which are generally regarded as defensive – such as Lonza (-27% YTD) and Roche (-13% YTD) – fell significantly. What are your predictions for 2024?

As regards Lonza, its share price was seriously affected by two specific factors in early autumn 2023, i.e. the end of a contract with Moderna and the sudden departure of its CEO, who has not yet been replaced. Excluding those two factors, the overall situation remains positive for Lonza. The fact that in-house manufacturing capacity at Eli Lilly and Novo Nordisk is currently stretched, as they try to meet demand for obesity drugs, indicates that the pharmaceuticals sector in general increasingly needs partners like Lonza.

In Roche’s case, although it has suffered from losing exclusive rights to certain drugs in recent years, over the medium term it has still managed to replace them in full with new products. However, Roche is still adjusting to the decline in sales of diagnostic solutions and medicines introduced to combat the Covid pandemic.