After a very strong year on the stock market in 2024 and the relatively high valuations of US technology stocks (Magnificent 7), a strong start to the year was not necessarily expected. Nevertheless, we can report a positive January. Except for India, all major stock markets recorded stable or rising prices.
However, a closer look at the mechanics of individual indices and market segments reveals that the market rotation away from the Magnificent 7 and popular technology stocks, which we have been observing since July 2024, is continuing—and in some cases, accelerating. In particular, stock markets in continental Europe, which had significantly lagged behind and were very attractively valued, posted high single-digit gains in January. At first glance, this appears unusual, as the economic and political situation in Europe has by no means improved. Apparently, market participants assume that Europe’s economy has better times ahead despite political stagnation, the war in Ukraine, and the threat of tariffs from Donald Trump.
Anyone monitoring technical market indicators will also notice that all major European stock markets have broken through previous resistance levels and now look strategically attractive. Further gains seem likely. In contrast, indices heavily weighted with the Magnificent 7—such as the S&P 500, Nasdaq 100, MSCI World Momentum, MSCI World Quality, and technology indices—are finding it increasingly difficult to reach new highs. Presumably, high valuations are limiting further potential gains.
The equal-weighted S&P 500 outperformed the regular S&P 500 in January, and indices tracking small and mid-sized US stocks also had a strong start to the year. For a change, the MSCI World ex USA outperformed both the MSCI World and the MSCI USA. It is becoming increasingly evident that a global equity market reorientation away from the Magnificent 7 and technology stocks is underway. Therefore, community members looking to invest fresh capital should take note of these trends.
Global bonds had a good to very good January, supported by high real interest rates across nearly all bond segments. Concerns over inflation, particularly related to Donald Trump’s expected policies, may have been somewhat overestimated in December. The commodity markets and gold also performed well in January, as did the US dollar.
We took this market rotation as an opportunity to review our investment building blocks for completeness and have decided to add an ETF to our program that provides broad exposure to the Swiss equity market. The Swiss stock market did not have a particularly strong 2024 but is currently very attractively valued and has frequently outperformed the MSCI World over the long term. Between 2000 and 2010, when US stocks were also highly valued, Swiss equities clearly outperformed. Although the Swiss stock market is concentrated in a limited number of stocks, these companies are well-managed and highly profitable. They therefore meet our high standards for quality and profitability, which we continuously emphasize.
For this reason, we view Swiss equities as a valuable addition to diversified equity portfolios. In addition to the ETF, we will also be adding an actively managed fund focused on smaller Swiss companies.
We also evaluated whether investing in the MSCI World ex USA would have historically made sense, in order to determine whether to include it in our advisory universe. Our findings show that only a brief period in the 1970s would have justified such an investment. Otherwise, the MSCI World ex USA has consistently underperformed the MSCI World, MSCI Switzerland, and other relevant indices. As a result, we have decided not to include an ETF tracking the MSCI World ex USA in our program at this time. However, those who disagree may consider the Xtrackers MSCI World ex USA ETF (ISIN: IE0006WW1TQ4).
