Review and Preview

Major stock markets concluded October in the red, marking it the third consecutive month of losses. The equities faced increasing challenges, notably from the rising long term interest rates. Year-to-date, the Swiss Leader Index (SLI) slightly dipped into negative territory at -0.8%, whereas the STOXX 600 managed to maintain its gains at +2.1%, and the S&P 500 remained in positive territory at +9.2%, even after experiencing three months of negative returns. Since reaching their peak levels towards the end of July, all three indices experienced a cumulative decline of approximately 10% by the end of October, placing them, by definition, in a correction phase.

In the third quarter, the US Gross Domestic Product (GDP), according to preliminary estimates, was an impressive 4.9%, following 2.2% in the first and 2.1% in the second quarter of 2023. Inflation moderated but still remained above target level.

The US Federal Reserve opted to halt further interest rate hikes in its most recent two meetings, while the European Central Bank (ECB) implemented an additional rate increase. Presently, interest rates stand at 5.50% in the United States, 4.50% in the Eurozone, and 1.75% in Switzerland. All three central banks are scheduled to convene for one more session during the current year, set for December 13 and 14, respectively.

Historically, November is the best month for the S&P 500 and marks the beginning of the “Best Six Months”. The performance in November of a pre-election year has been somewhat weaker on average, but it still tends to be positive.

Reshoring (also known as near-shoring or friend-shoring) is the process of bringing back manufacturing and other business activities to the home country. This is a trend that has gained momentum in recent years, driven by various factors, including the COVID-19 pandemic, the ongoing trade tensions between the United States and China, and increasing concerns about the resilience of global supply chains.

Reshoring can have significant impacts on economies in both the countries where it occurs and the countries companies are leaving. In the short term, reshoring can lead to job losses in the countries companies are moving away from, as well as higher prices for consumers in the countries where companies are relocating. However, in the long term, reshoring can stimulate economic growth in the countries where it takes place, as companies invest in new factories and equipment and hire new employees.

Reshoring can also impact inflation. In the short term, reshoring can lead to higher consumer prices as companies pass on the costs of reshoring to their customers. However, in the long term, reshoring can help reduce inflation by making supply chains more resilient and reducing dependence on imports.

The reshoring process does not occur in a vacuum. Parallels between the current geopolitical situation and the post-World War II era indicate that the reshoring trend is likely to accelerate in the coming years. It is possible that reshoring will gain momentum as a response to the new Cold War. In a time of increasing geopolitical tensions, companies may seek to bring their production back home to protect it from potential disruptions in supply chains.

We see the following countries as winners in the reshoring process: the United States, Mexico, Canada, Germany, Japan, South Korea, and Taiwan. These countries have strong manufacturing sectors, skilled workforces, and good infrastructure. They are also close to major markets, making them attractive locations for companies to establish their business operations.

The following countries could be considered losers in the reshoring process: China, Vietnam, Thailand, and Indonesia. These countries have benefited the most from offshoring in recent decades. The reshoring trend is likely to reduce demand for their exports.

The following industries are expected to benefit from the reshoring process: aerospace, defence, automotive, electronics, medical devices, pharmaceuticals, and semiconductors. These industries are all highly capital-intensive and require skilled workers. They are also considered strategically important by governments.

The following industries may be losers in the reshoring process: apparel, consumer electronics, furniture, and toys. These industries are relatively labour-intensive and can easily be shifted to countries with lower labour costs.

As part of the reshoring process, will the United States also retreat into “splendid isolation” on the political stage?

“Splendid Isolation” is a term used to describe a country that withdraws from international affairs and focuses on its own domestic matters. One factor is the rise of populism and nationalism. Populist and nationalist governments often advocate inward-focused policies, such as trade protection measures and immigration restrictions.

A new policy of splendid isolation could lead to a reduction in the US trade deficit, increased resilience to external shocks, and an increase in jobs. Negative effects could include a higher price level and increased tensions with other countries.

Already, the reshoring process could be one of the factors explaining current economic trends, including the resilience of the US economy and job market, the strong performance of the US dollar, as well as the global surge in inflation rates.