Current stock market outlook – June 2023

June 8, 2023

“All eyes are on the FED”

What is currently driving the financial markets?

The last few weeks have been dominated by reports surrounding the negotiations on the US debt ceiling. An agreement is now likely, which is of course positive for the markets. Meanwhile, the latest figures for the US Purchasing Managers’ Index (PMI) in the manufacturing sector are not yet sending any positive signals: At 46.9, little changed from the previous month, the index remains below the threshold of 50. Readings above this level usually speak as a leading indicator for a rising GDP Gross Domestic Product, readings below it correspondingly for a falling one. It is worth noting, however, that the aggregate PMI in the emerging markets is above the 50 mark and has recently even started to rise again.
The global economy is, of course, still struggling with the consequences of the sharp rise in interest rates. This is leaving its mark, particularly in interest-sensitive areas such as real estate.
Meanwhile, consumption in the US remains strong, which is a positive sign – after all, consumption is the real driving force behind any economy. Of course, this is also linked to the strong labor market, which is now showing slight signs of weakness for the first time. However, this is at a very high level. Hopes of a rapid recovery in China have been dampened, at least temporarily. The latest economic data was worse than expected.

How did the markets react?

While prices for many commodities have fallen in recent weeks, most other asset classes have not shown any major movements and have remained within a narrow range. However, there was one major exception: the topic of AI or artificial intelligence has fired the imagination of some market players: Shares in companies that could benefit from this trend have skyrocketed in some cases. This applies in particular to certain chip manufacturers and suppliers as well as many companies in the cloud sector.
Meanwhile, the so-called “fear barometer” VIX, a share volatility index, is sending out relaxed signals: it has reached new lows in recent weeks, indicating optimism among market participants.

What next?

With shares boosted by the topic of artificial intelligence, the question of possible parallels with the dot-com bubble at the end of the 1990s inevitably arises. It is indeed surprising how similar the share price developments are. However, there is one major fundamental difference: whereas in the dot-com bubble it was mainly shares of unprofitable companies that went through the roof, today it is mainly companies with a very solid track record and corresponding foundations: profitable companies with low debt financing.
We are seeing the first signs of stabilization in PMIs in many places, which is very positive. In terms of inflation dynamics, it can be assumed that these will continue to decrease. The further shortening of delivery times in global supply chains is an indication of this.

There is of course a question mark over further developments in China. But after the disappointing economic data published recently, there is certainly room for positive surprises. As far as interest rates are concerned, all eyes are now on the US Federal Reserve: Fed Chairman Jerome Powell’s recent comments certainly leave room for a pause in the rate hike cycle – or even for a scenario of no further interest rate rises. This would be a decisive turning point, and US government bond prices in particular would benefit greatly from this. It is clear that the turning point is coming. The only question is when exactly. It is important to prepare for it now.

How do we position ourselves as an active asset manager?

We are broadly diversified in terms of equities. Both in terms of the regions and the various sectors. US government bonds with medium maturities and gold – both currency-hedged – are also important cornerstones of our multi-asset strategies.

Point Capital Group
8. June 2023