Contribution by Bank J. Safra Sarasin Ltd
Inflation figures once again stole the show in November. The broad-based market rally was mainly a reaction to lower-than-expected CPI in the US. Beyond the potential slowdown of the Fed’s monetary tightening, our thematic investment team has identified a number of key developments that investors should pay close attention to:
- Healthcare: Large-cap pharma companies and biotech are still outperforming the broader healthcare sector. The US mid-term election results are also positive for the industry, as the split congress means we do not expect any new regulation affecting healthcare. Finally, Eisai and Biogen presented the long-awaited detailed data for the pivotal trial of their drug to treat Alzheimer’s disease, lecanemab, which successfully reduces the rate of cognitive decline by an average of 27%.
- Energy crisis: In Europe, colder weather and net gas storage withdrawals led to volatile spot gas prices, which surged 500% in November, offsetting October’s decline. Electricity prices have followed the same trend and the potential for supply disruptions in winter is high, with a number of governments introducing plans to cap gas usage. In Switzerland, a potential emergency measure was introduced to limit the use of electric vehicles to “absolutely necessary journeys”.
- Tech spending: As companies brace for a potential recession, many are optimising their IT budgets. Although the revenue growth of cloud providers such as Azure and Amazon Web Services has decelerated more than expected, software companies that provide mission-critical services, such as ServiceNow and Palo Alto Networks , are benefitting from the consolidation in vendors. Meanwhile, data centre chip spending remains resilient as investments in artificial intelligence continue to be strong.
- Generation active: Millennials and Gen Z gym attendance is higher than that of earlier generations and has risen even further since Covid. The leading US gym network, Planet Fitness, is a clear winner of this trend. It currently has about 16 million users, and plans to double that in the medium term.
