Current stock market outlook – July 2023

July 5, 2023

“The cards are on the table: reporting season is just around the corner”

What is currently driving the financial markets?

There have been some positive impulses for the markets in recent weeks. Firstly, there was the dispute over the debt ceiling in the US, which was resolved. The positive signals from the US real estate market are also worth noting: construction activity in the private housing market has surprisingly picked up again. At the same time, the US labour market remains quite strong.
The US Federal Reserve decided not to raise interest rates again and thus at least took a break. It is keeping the key interest rate unchanged in order to await new economic data. At the same time, the economic forecast for 2023 was raised.
However, the latest figures for the US Purchasing Managers’ Index (PMI ) in the manufacturing sector are not yet sending any positive signals: With a slightly lower value of 46.0 compared to the previous month, the index remains below the threshold of 50. Values above this level are generally a leading indicator of rising GDP gross domestic product, while values below this level are a corresponding sign of a decline. It is worth noting, however, that the aggregate PMI in the emerging markets is above the 50 mark and has recently even been trending upwards again.
Meanwhile, we continued to receive negative surprises from China. The reopening has lost momentum and the government is looking for new recipes to boost economic activity again. Although the service sector is strong, industry and the real estate sector have failed to impress. And as far as Europe is concerned, the latest economic data from the eurozone as a whole was not convincing.
The European Central Bank (ECB) and the Swiss National Bank (SNB ) each made a further interest rate cut of 0.25 %. While inflation in the eurozone remains stubbornly high, it has already fallen below 2 % again in Switzerland. And while the Bank of England BoE is likely to maintain its restrictive monetary policy, the situation in Japan is completely different: The Bank of Japan BoJ is sticking to its very loose monetary policy.

How did the markets react?

The markets have performed differently in recent weeks: equities have risen, while bonds have fallen in some cases in the wake of the central banks’ harsh rhetoric. On the equity side, it is positive to note that market breadth has increased in recent weeks, i.e. many stocks have performed well and this positive development has not been limited to individual market segments, as has long been the case since the beginning of the year. Meanwhile, the so-called “fear barometer” VIX, an equity volatility index, continues to send out relaxed signals: it has reached new lows in recent weeks, which speaks for optimism among market participants.

What next?

The reporting season starts in mid-July: companies present their figures for the second quarter and share their estimates for the coming months. This will be decisive for the further course of the markets in the short term. Supply chains have continued to normalize and companies have adjusted to higher prices, that should be clear. The main focus will be on companies’ assessments for the coming months. How full are the order books? Will the previous forecasts for turnover and margins be maintained? And if not, will there be more positive or negative surprises? As usual, the big US banks will kick off the reporting season from mid-July.
But investment decisions are always made with a certain degree of uncertainty. Long-term investors should therefore not concern themselves too much with these short-term issues.

How do we position ourselves as an active asset manager?

In terms of equities, we focus on sectors with above-average profitability and on individual stocks with high quality, i.e. a strong business model and solid financial ratios with low debt. US government bonds with medium maturities and gold – both currency-hedged – are also important cornerstones of our multi-asset strategies. On the currency side, we expect the Swiss franc to remain strong.

Point Capital Group
5. July 2023