Prices on the stock exchanges – especially in the USA – are slowly crumbling. The central banks play a crucial role in this.
Only two interest rate cuts instead of three in the USA?
In Europe, the ECB will probably cut interest rates again for the first time in June. Even if ECB boss Lagarde has recently held back a bit, the latest inflation figures clearly support this conclusion. The rate is declining. In Germany, inflation even fell to 2.2 percent in March. Things look completely different in the USA. The markets expect only two to three interest rate cuts for 2024. The current ISM industrial purchasing managers index – an early indicator of the short-term sentiment of the companies surveyed – climbed to over 50 points for the first time since September 2022. This indicates an expanding industry. The sub-indices for new orders and prices also exceeded expectations. In addition, Fed Chairman Jerome Powell emphasized again just a few days ago that the monetary authorities do not need to rush to cut interest rates.
Europe is ahead in the interest rate cutting cycle
On the interest rate futures markets, only two to three interest rate cuts are now expected this year, possibly later than June, as was previously assumed. As a result, US government bond yields rose noticeably. The trade-weighted US dollar index also rose to its highest level since November. So when it comes to the interest rate cutting cycle, Europe is ahead.
Prices in the USA are crumbling – correction in sight?
As a result, the prices in the S&P 500 and the NASDAQ 100 have recently declined. Although this is not yet dramatic, it could be an initial indication of an impending correction on the markets. After the high price gains in the first quarter, this seems to be the order of the day anyway and would be seen as positive for the rest of the stock market year. After all, the increase since the beginning of the year has been very extreme. But: Are these just the first profit-taking? We think it will go up even further this year as interest rates are cut.
Europe overweight
That’s why we continue to keep the equity quota in our mixed fund Frankfurter Aktienfonds for foundations high. But the top positions in the portfolio all come from Europe. The French Sartorius Stedim Biotech, the French insurance group SCOR, the Norwegian financial group Storebrand and the Italian biotech group DiaSorin are among the highest weighted positions. And our Frankfurt UCITS ETF – Modern Value is always 100 percent invested in stocks anyway. Here too, European titles set the tone. There are currently 21 stocks from Europe for every 9 US stocks. This shows our confidence in European stocks.
Willingness to invest is constantly decreasing
But we are not overconfident either. We pay close attention to the trends on the stock markets and react very quickly in case of doubt. As can be seen overall: Investors are slowly becoming cautious after the good performance of the past few months. A survey recently published by Handelsblatt shows that investors apparently know that the rally cannot actually continue like this. The future expectation is strongly negative with a value of minus 4.3. The willingness to invest is also very low with a value of minus 1.1.
This is just a look at the German investor landscape. But it is an indication that it can quickly spread to other markets. The USA offers illustrative material here.
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Frank Fischer, CEO & CIO of Shareholder Value Management AG and in this role responsible for the “Frankfurt Stock Fund for Foundations”, writes regularly about the international stock markets. As a convinced value investor, Fischer has many years of expertise in all questions relating to funds, the stock market and also the foundation system. In his regular market commentary, he pays particular attention to behavioral finance, as well as investments in small and midcap stocks.
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