Two Equity Stories You May Have Missed

It has been a poor week for equity markets, even as the session’s losses are being pared, or even reversed.  Geopolitical tensions, and the fallout from escalating sanctions, are the easily cited culprits, along side some disappointing earnings. 

The point we make is that the correction began before this week.  Many of the European markets peaked in May and June.  The US S&P 500 set a record high on July 24 and gapped lower the following day.  We had identified that gap as significant and anticipated the subsequent sell-off.  Although the 1895-1900 was the first objective,  there is potential toward 1850-1865.  

There are two interesting equity stories that might investors may have missed.  First, the Swiss National Bank has lightened up on its largest US equity holdings.  Yes, the Swiss central bank is one of the few central banks from high income countries that have diversified some of their reserves (around 16%) into equities.  The Federal Reserve, Bank of England, European Central Bank and the Bank of Canada, for example do not have equity investments.  Surveys suggest about 1 in four central banks either have equity investments or will consider doing so. 

The Swiss National Bank’s SEC filing revealed that it sold about 0.3% of its stake in Apple in Q2 after reducing its holdings by 10% in Q1.  The SNB trimmed its Exxon and Johnson & Johnson  holdings be 0.2% each after cutting its holdings by 8% and 5% respectively in Q1.  

While these three companies are the Swiss National Bank’s largest US equity holdings, it owns a piece of almost 2500 US companies.  It is a passive investor.  Its goal is to maintain the purchasing power of its reserves by replicating a broad based indices.   In this sense, the SNB is not acting much differently than some sovereign wealth funds, such as the Norway’s petroleum fund.