Stock rally hinges on a few shares

The markets also lacked market breadth in February, and this should continue for the time being: The stocks that are very highly weighted in the indices will probably continue to perform better and the high concentration will therefore remain in the markets.

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.  

We remain generally constructive for the coming weeks. The US economy continues to hold up well and the inflation surge is behind us. The probability of a US recession or a "hard landing" for the US economy is currently only 30%. The US Federal Reserve (Fed) is expected to cut interest rates in four stages from June. If the recession does not materialise during this correction phase, the stock markets should continue to rise. In the short term, however, the persistently high level of optimism suggests that the stock markets should not run away for the time being. We do not expect a massive slump on the stock markets. On the bond side, we see the time until the first interest rate cut as a good opportunity to extend duration. Japan and gold remain interesting additions. 



  • Shares of companies whose business model is largely independent of the economy and has high margins (and ideally also have a certain cost-cutting potential)
  • Special situations such as artificial intelligence (AI), diabetes/obesity and beneficiaries of the US "Inflation Reduction Act" should have a tailwind. The top technology companies will continue to invest heavily in AI. Well-positioned suppliers in the AI supply chain also offer potential. Stock picking will become a decisive factor in 2024.
  • We put the probability of a recession in the US at around 30%. If the recession does not materialise during the upcoming interest rate correction - four interest rate cuts are likely in the US - the stock markets should continue to rise.
  • Bonds from investment grade upwards with medium and longer maturities and also selected longer-dated (government) bonds. Selected EM bonds such as Brazilian government bonds (also in local currency). With its rational monetary and fiscal policy, Brazil is well positioned as a reliable emerging market.
  • Until the first interest rate cut, there is now a good opportunity to extend the duration of bond portfolios.



  • Germany's structural problems (tax burden, bureaucracy, expensive and unreliable energy supply, high dependency on China) cannot be solved with an expansive monetary policy. Things do not currently look good for the further development of Germany as a business location. However, internationally positioned, well-diversified German companies should be able to decouple themselves from this. Germany must reinvent itself as an industrial centre.
  • Deep and prolonged recession in Germany. This is weighing on stocks that are heavily dependent on German domestic consumption.
  • Banking sector: It usually takes 2-3 years for the higher interest rate level to reach the real economy. Individual bank balance sheets therefore contain certain risks, for example in the case of private loans. However, we do not foresee a new banking crisis.
  • The Achilles heel of the global economy is the US financial system and its high vulnerability. However, the USA will not risk a new financial crisis and will take countermeasures in good time should any problems arise.
  • The geopolitical conflicts in Ukraine and the Middle East are likely to remain with us in the future. However, the USA increasingly sees these as a European problem.


Fundamental indicators

  • Robust US economy so far, low probability of recession
  • Interest rate cuts expected later and positive for the stock markets if they can be seen as "non-recessionary steps"
  • Economy in Europe weaker than in the USA
  • China: 5% growth target hardly achievable without stimuli

The US economy - with a strong labour market - continued to be resilient. There is no reason for the US Federal Reserve to cut interest rates in order to avoid a recession (even in view of the slight rise in inflation). Accordingly, expectations of the first interest rate cuts have been pushed back. We expect four rate cuts from June onwards. Phases in which interest rates fall are often less favourable for the stock markets. But if the US economy remains robust and interest rates can still be lowered, the environment for the US stock market should remain positive. Looking ahead to the US election year, we believe that Donald Trump would be the winner if the election were held today. Trump is likely to resume his old tariff policy towards Asia and Europe, i.e. increase tariffs, as he sees other countries as competitors rather than economic partners, unlike Joe Biden. The NAFTA states could benefit from this if they are left out of the tariffs, as they were during Trump's last term in office. Another difference to the Biden administration: Trump is likely to focus more on economic and less on military confrontation in geopolitical terms. However, US fiscal policy is likely to remain a continuum. Even under a President Donald Trump, we expect an expansive fiscal policy. The USA will remain the region's capital magnet and will continue to attract a lot of foreign capital.

In Europe, on the other hand, we expect economic development to be significantly weaker than in the USA. The German economy is likely to remain under greater pressure in 2024: The former German business model, based on cheap energy, a well-educated workforce and good export markets, is under severe pressure and there is no new approach so far. In China, on the other hand, the government has announced a growth target of 5%, as expected. In our view, however, this cannot be achieved without stimuli, e.g. through infrastructure investments, as the 2023 benchmark for 2024 is significantly stronger than the weak year 2022, which was still characterised by coronavirus, was for 2023. In addition, the property crisis continues to smoulder and prices have not yet stabilised. Internally, faith in the Chinese leadership has waned and the US is trying to dampen Chinese growth from the outside.


Monetary indicators

  • Inflation in the USA and Europe under control
  • Interest rate cuts likely to begin in the USA in June, ECB to follow

Thanks to the most massive and fastest interest rate hikes in history, the Fed and the ECB have got inflation under control. The big surge in inflation is behind us, goods price inflation is no longer a problem, only services inflation is stubbornly persisting.

For us, it is unlikely that the ECB will start cutting interest rates before the Fed. Our base scenario would be four rate cuts by the Fed followed by a pause. The ECB is following the Fed with its steps because it does not want to weaken the euro any further.

From today's perspective, the Fed is likely to start cutting rates in June and take a total of four steps this year, i.e. rate cuts of four times 25 basis points (1%), but no prospective rate cut to 1%. This would also be comparable with the past: a peak adjustment of 1% if there is no recession - which is what it looks like.


Market technical indicators

  • Negative: Excessive optimism sets anti-cyclical sell signal
  • Negative: Market breadth has deteriorated again

Sentiment indicators such as the Fear & Greed Index and the NAAIM Index (which shows the equity exposure of professional US investors) point to great optimism. In fund manager surveys, very low, sometimes negative cash ratios signal that investors are fully invested. The danger is that even minor disappointments can be enough to tip the balance.

Another negative factor is that market breadth has recently deteriorated again. This means that growth has been driven by only a few stocks with a high weighting in the indices, primarily the so-called "Magnificent Seven" - the seven major US technology stocks. There have only been three periods in stock market history with such a concentrated development, namely 1929, 2000 and 2023/2024.


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