US monetary authorities will meet next week for the last time before the summer recess. The Fed's tightening cycle is likely to come to an end, but we do not see any potential for rate cuts.
Analyst attention is currently focused on Q2 corporate earnings season, which kicked off last week with results from major US bank JPMorgan Chase. The start has been promising, however, we will only be able to draw the first conclusions when US big tech companies publish their figures. The highlight, in our view, will be next week's meeting of the Federal Reserve (Fed), as it will be the last before Fed members go on their summer break. That's right - the world's most powerful central bank will not make another interest rate decision until the end of September.
On 26 July, investors expect the Fed to raise interest rates by another 25 basis points to a target range of 5.25% to 5.5%. Thereafter, financial markets expect 150 basis points of rate cuts until December 2024. We continue to believe that the Fed is already in the late stages of its tightening cycle. Therefore, it will make no difference whether another, and probably final, move of 25 basis points follows the massive rate hikes of 500 basis points in the past 16 months. Whether we see a hike this time, whether the Fed pauses again or whether it skips this date and signals a next move in September is, in our view, a side issue. What is more important is that there will be no tightening to above 6%. In our view, this remains a marginal scenario. Real interest rates in the US are therefore likely to have peaked.
It is interesting to note that investors' expectations of interest rate cuts in the coming quarters have risen again in recent weeks. Contrary to market expectations, we continue to believe that there is little potential for rate cuts in the next 12 to 18 months. Similar to the spring of 2023, when investors were confronted with the US regional bank crisis and expected interest rate cuts, we see no reason for an easing of monetary policy in the near future. The fight against inflation is not over yet. The US labour market, with an unemployment rate below 4%, continues to signal overemployment and thus price pressure.
In this environment, there will be no central bank gifts for investors, and the most important success factor for the second half of the year remains selection. Within equities, quality is key. The reporting season will show which companies not only beat expectations but also provide a solid outlook for the second half of the year.
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Responsible for compilation: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel, Switzerland. Responsible supervisory authority: Swiss Financial Market Supervisory Authority FINMA, Laupenstrasse 27, CH-3003 Berne, Switzerland. Responsible for distribution within the meaning of article 8 FinMV [Financial Analysis Market Abuse Ordinance]: LGT Bank Ltd., Herrengasse 12, 9490 Vaduz, Principality of Liechtenstein. Responsible supervisory authority: Liechtenstein Financial Market Authority (FMA), Landstrasse 109, P.O. Box 279, 9490 Vaduz, Principality of Liechtenstein. Responsible for distribution within the meaning of the Directives on the Independence of Financial Research from the Swiss Bankers Association (SBA): LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel, Switzerland. Responsible supervisory authority: Swiss Financial Market Supervisory Authority FINMA, Laupenstrasse 27, CH-3003 Berne, Switzerland. Responsible for distribution within the meaning of section 48f BörseG [Stock Exchange Act] and the circular regarding financial analysis in connection with the interpretation of section 48f Stock Exchange Act [Börsegesetz (BörseG)]: LGT Bank AG, Zweigniederlassung Österreich, Bankgasse 9, A-1010 Vienna, Austria. Responsible supervisory authority: Liechtenstein Financial Market Authority (FMA), Landstrasse 109, P.O. Box 279, 9490 Vaduz, Principality of Liechtenstein; Austrian Financial Market Authority (FMA), Otto-Wagner-Platz 5, 1090 Vienna, Austria.
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Employees of LGT Capital Partners Ltd., Pfäffikon, LGT Bank Ltd., Vaduz, LGT Bank (Switzerland) Ltd. and LGT Bank AG, Zweigniederlassung Österreich, who are responsible for compiling and/or distributing financial analyses, are subject to the applicable regulations as prescribed by law and supervisory legislation. In particular, measures were taken to avoid conflicts of interest (e.g. checking information exchanged with other employees, independence of the remuneration of the employees concerned, preventing the exertion of influence on these employees, compliance with rules on employee transactions, etc.). In addition, the handling of financial analyses is governed by an internal, group-wide directive issued by LGT Group Foundation, Vaduz. Adherence to the regulations and organizational instructions is monitored by a Compliance Officer.
Reference regarding analysis history
If this analysis was made available to any issuers mentioned in the publication prior to its distribution or publication, no changes were made to the price or rating after the issuer’s feedback. Important references for Liechtenstein can be found in articles 3 to 6 FinMV [Financial Analysis Market Abuse Ordinance], for Switzerland in the Swiss Bankers Association Directives on the Independence of Financial Research, and for Austria in section 48 BörseG [Stock Exchange Act], the Austrian analysis principles of the Österreichische Vereinigung für Finanzanalyse und Asset Management [Austrian Association for Financial Analysis and Asset Management, ÖVFA] and the Austrian Society of Investment Professionals (ASIP) and the Standard Compliance Code of the Austrian banking sector. A history of all ratings and recommendations is available at your LGT relationship manager.
Essential sources of information
Our analysts draw on publicly accessible information we consider to be reliable. For the compilation of the analysis, publications by domestic and foreign media and news services (e.g. Reuters, Bloomberg, VWD etc.), business publications, trade publications, statistics and rating agencies were used, together with information from the issuers of the analyzed securities – mainly via the Internet, but also in writing or by telephone. We also procure information from investment banks (sell-side research and primary research).
Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
This publication does not constitute either an issuing or listing prospectus, nor any other kind of prospectus. This publication also does not constitute any offer for subscription or any other transaction or obligation.
Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
No guarantee is provided that the publications and information are up to date. Investment decisions should therefore always be made on the basis of the current prospectus and/or the complete documentation and publication of the third party/fund issuer (in particular the key investor information) and following consultation with an expert. This fund recommendation does not meet all the statutory requirements for guaranteeing the impartiality of financial research. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to this recommendation. It does not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments. LGT Bank (Switzerland) Ltd. and/or its affiliated companies are not subject to any prohibition of trading prior to the publication of financial research with regard to the recommended funds. The research can form the basis for the investment decisions of LGT Bank (Switzerland) Ltd. itself and/or those of its affiliated companies. It is possible that LGT Bank (Switzerland) Ltd. and/or its affiliated companies might receive retrocessions from the issuers of the funds dealt with here.
All selected third-party funds are subjected to a thorough quantitative and qualitative analysis process prior to inclusion in the LGT FundGuide. Selected third-party funds are also subject to a continuous monitoring process. Austria: Investment decisions should only be made on the basis of the current KIID and valid prospectus following consultation with an expert.
Country-specific information
LGT funds: The current full prospectus, the Key Investor Information Document (KIID) and the current annual and semi-annual reports can be obtained free of charge from the fund administrator and from the following addresses: Liechtenstein: LGT Bank Ltd., Herrengasse 12, FL-9490 Vaduz and as an electronic version at www.lafv.li; representative for Switzerland: LGT Capital Partners Ltd., Schützenstrasse 6, CH-8808 Pfäffikon; main distributor and paying agent for Switzerland: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel; paying agent in Austria: Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, A-1010 Vienna.
This recommendation was prepared by LGT and not by an independent financial analysis department. Therefore this recommendation does not meet all the statutory requirements for guaranteeing the impartiality of financial research. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to this recommendation. Investments in structured products entail a wide range of risks. Investment decisions should therefore only be made on the basis of the valid prospectus or complete documentation following consultation with an expert. This does not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments.
Information about foreign currencies were produced by LGT Bank (Switzerland) Ltd. and not by an independent financial analysis department. Therefore, forecasts, observations and price information are subject to change at any time and there is no guarantee that the information is complete. Investment decisions should accordingly be made in consideration of the investor’s personal risk tolerance and within the overall context of the portfolio. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to currency analysis. Such analyses do not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments.
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