Market expectations: too optimistic about interest rate cuts?

2024 got off to a positive start: the global MSCI share index gained around 2.85 per cent in the first month of the year, while the DAX rose by 0.91 per cent. The upward trend was primarily driven by the good performance of technology and healthcare stocks.

Looking ahead to the current month of February, we assume that the stock markets will not immediately run off. From a seasonal perspective, February tends to be a difficult month; from a technical perspective, there is still (too) much optimism. Market expectations regarding interest rate cuts in 2024 are likely to remain overly optimistic. The high concentration on the markets, i.e. the clearly better performance of the very highly weighted stocks in the indices, could also continue in 2024. There was no better market breadth in January. We believe that an overall defensive portfolio with a focus on special situations is appropriate in the equity sector. However, a massive slump on the markets is not currently expected. In the bond market, the interest rate level does not appear attractive enough for a stronger duration extension at the longer end. Japan and gold remain interesting as an admixture, as do selected Asian tech stocks that are well positioned in the AI value chain.

The authors

From the strategy team of DJE Kapital AG 

DJE's strategy team continuously monitors and evaluates the markets using its proprietary FMM methodology based on fundamental, monetary and market technology indicators.  


  • Bonds from investment grade upwards with medium maturities and also selected government bonds as well as selected EM bonds (also in local currency, for example Mexico)
  • Shares of companies whose business model is largely independent of economic cycles with high margins (and which ideally also have a certain cost-cutting potential)
  • Special factors such as artificial intelligence (AI) should also have a tailwind in 2024: Americans are living off the genuine digital transformation; the top technology companies will continue to invest heavily in AI in 2024; well-positioned suppliers in the AI supply chain, e.g. from Taiwan, are also of interest
  • Focus on large stocks (index heavyweights) also seems reasonable in 2024: these are likely to hold up well in 2024 - also due to their sometimes strong market position – as long as the economy does not collapse; good stock picking should be crucial in 2024
  • In the longer term or at least over the next ten years, there are not many reasons why equities should not perform similarly to the last ten years


  • Market expectations of five interest rate cuts by the Fed in 2024 appear too optimistic
  • Deep and prolonged recession expected in Germany and Europe; equities that are heavily dependent on German and European domestic consumption could suffer; the old German business model remains under severe pressure
  • Dampening/weakening of US consumption and US economic activity not unlikely; risk for bonds with poor credit ratings
  • Banking sector: Peak earnings may have been reached, further multiple expansion seems difficult


  • US economy remains relatively resilient; labour market remains strong, interest rate cut speculation has slipped backwards
  • Expected economic development in Europe weaker than in the US
  • China: faith in the Chinese leadership has declined sharply

If elected today, Donald Trump would win. He is likely to increase tariffs on Asian and European products (unlike Biden, Trump sees other countries more as economic competitors); NAFTA countries, on the other hand, are likely to be left out of tariffs.

It is very difficult to predict whether or not a recession will finally turn up in the US; it remains realistic that US consumption will weaken over the course of the year and economic activity will be dampened to a certain extent.

Economic development expected to be weaker in Europe than in the US; the German economy is likely to remain under greater pressure in 2024: the former German business model (cheap energy, well-trained workforce, good export markets) remains under severe pressure.

China: faith in the Chinese leadership has waned considerably, GDP growth of five per cent is hardly achievable without infrastructure stimuli. Property prices have also not yet stabilised, so the situation remains difficult overall. The focus is therefore on stock picking.

Monetary indicators: 

  • Inflation in the USA and Europe under control
  • Assumptions for interest rate cuts too optimistic

Due to the most massive and fastest interest rate hikes in history, the Fed and the ECB have got inflation under control. From a short-term perspective, the core rates in Europe are below two per cent, but remain above three per cent in the USA.

The expected start of interest rate cuts is undoubtedly a good expectation for this year. However, it may be some time before interest rate cuts have a positive effect on the economy. A slight relief is to be expected from the money supply figures.

We consider an interest rate cut in the US as early as March to be unlikely and more realistic from the middle of the year onwards; however, the assumed five interest rate cut steps in 2024 seem too optimistic: The US central bank does not normally do too much in an election year and therefore does not interfere too much with politics.

Sentiment indicators:: 

    • Indicators such as NAAIM, Fear & Greed and cash ratios in the fund managers survey are rather negative
    • Market breadth has recently weakened again

At the moment, sentiment is rather negative based on indicators such as NAAIM (which shows the equity exposure of professional US investors), Fear & Greed and cash ratios in the fund manager survey.

A push for the stock markets could come if there is more pessimism again. In US election years, there was usually a sideways trend in the first five months, followed by a positive annual trend overall.

On the negative side, market breadth has recently weakened again. Based on the MSCI, the top 10 performers (all very large stocks) accounted for 95 per cent of the index increase in January. Historically, there have only been three periods in stock market history with such a concentrated development, namely in 1929, 2000 and 2023/24.


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