Positive momentum

Sentiment is currently supporting the stock markets: investor optimism is not too high and the seasonal rhythm is providing a tailwind. In addition, the probability of another interest rate step in the USA has decreased. Beyond that, however, there are warning signals, for example a shrinking money supply and poorer lending on the part of banks.

The authors

DJE's team of strategists continuously monitors and evaluates the markets using the in-house FMM method according to fundamental, monetary and market criteria. They summarise their findings once a month.


From the strategy team of DJE Kapital AG

The inflation trend and central bank policy will remain the determining topics for the stock markets for the foreseeable future. News from the banking and real estate sector will continue to be in focus: Commercial real estate loans in particular - especially at US regional banks - remain a risk factor. The problems in the banking sector and a slowdown in inflationary dynamics substantiate the assumption that we have now slowly reached the end of the interest rate hike cycle. The probability of another interest rate step by the US Federal Reserve (Fed) on 03.05.2023 is now only 50%.

Looking ahead to April, the positive momentum in the markets could continue. Tailwinds come from market technology and the seasonal rhythm. Looking ahead to the second half of 2023, however, we believe the market's expectations of interest rate cuts are too optimistic. Furthermore, banks are likely to become much more selective in granting loans, so that the overall decline in lending should then slow down economic development. We therefore stick to our assumption that we expect a better first half of 2023 on the stock markets and a more difficult second half of the year. We consider the risk-reward ratio in the bond markets to remain attractive. There should also be selective opportunities in selected emerging market regions.



  • Price decline for US commercial real estate possible - with consequences for US regional banks
  • Poorer lending and delayed effect of monetary policy are a burden, especially with a view to 2024
  • China's opening up positive for Chinese and Asian growth
  • Oil and energy market could tighten in the second half of the year

We continue to monitor the commercial real estate situation very closely, especially in the US. The volume of commercial loans at US regional banks is around USD 3,000 billion (in 2005 it was around USD 800 billion). The increasing vacancy rate, which is already around 18% in some regions, is problematic. If there is a wave of sales, prices for US commercial real estate are likely to fall sharply. Assuming a 20% drop in prices, US regional banks would be sitting on about $600 billion in bad loans.

On both sides of the Atlantic, banks are likely to become more selective in approving loans. If bank lending deteriorates in both the US and Europe, this will have an impact on the economy as a whole. In the medium term, we expect weakening leading indicators and weaker earnings in some sectors. Therefore, with a view to 2024, many growth forecasts seem too optimistic to us. Moreover, in our view, the current forecasts do not take into account the time lag with which the restrictive monetary policy, i.e. the individual key interest rate hikes, will take effect. In most cases, a key interest rate hike only reaches the economy with a lag of around six months.

China's rapid opening, i.e. the departure from its zero-covid strategy, is positive for Chinese and Asian growth. But it also has an inflationary effect. In China, the service and travel sector in particular is currently developing very well; the situation on the real estate markets is also stabilising. For the global economy, the impulse coming from China's opening is probably somewhat smaller, as local consumption has been increasing so far.

OPEC, the Organisation of the Petroleum Exporting Countries, recently announced a production cut to stabilise the oil price. The move had taken the markets by surprise. The oil market could tighten again in the second half of the year. For Europe, this could result in supply difficulties in gas supply in the coming winter, or at least this cannot be ruled out.



  • Headline inflation falls, core inflation remains stubborn
  • Yield curve steepening again - a drag on equities
  • Bonds overall still negative, but selected high-quality bonds with attractive yields
  • Money supply shrinks: no monetary tailwind for stock markets

In the US, headline inflation should continue to fall in the coming months. In the eurozone, headline inflation should also fall, driven by energy prices. Improvements or declines in the inflation rate take pressure off the central banks and reduce the need for further interest rate steps.

The situation is different with core inflation, which is measured without the energy and food components. It is more persistent and is likely to fall less than headline inflation for the time being. Inflation components such as rents or services will only come back with a time lag, which means that too much optimism about quick interest rate cuts before the end of the year is not appropriate in our view.

It seems that the market is generally much more optimistic about interest rate developments than the members of the Federal Open Market Committee (FOMC) of the US central bank. Now the US yield curve continues to be inverted, i.e. two-year US government bonds yield more than ten-year ones, although their risk is higher due to their longer maturity. This situation is considered a signal of a coming recession. However, the inverse is slowly receding and the yield curve is steepening again. In the past, this "bull steepening" was rather a burdening factor for the stock market.

Since the inflation policy in the US is sharper than in the euro area, the US inflation rate is likely to decline faster than the European rate. This tends to be positive for the US bond market. In general, however, sentiment remains negative for bonds. Targeted selection remains the order of the day. We continue to see opportunities, for example, in high-quality corporate bonds with a credit rating of AA or A and an attractive yield.

Historically, the development of the money supply has always been the factor that has had the greatest influence on the stock markets. Currently, the M1 money supply in the US is no longer growing and US excess liquidity is negative. This means that there is currently less or too little surplus money in circulation for equity investments.


 Market technique (sentiment)

  • Strong pessimism is an anti-cyclical buy signal
  • Positive seasonal rhythm

The current sentiment continues to be supportive for the stock markets. There is no excessive optimism in the markets. This is positive, as the mood is less likely to turn to disappointment in the event of possible bad news. In this context, the strong pessimism in investor surveys by the AAI (Association of American Individual Investors) in the US is a counter-cyclical positive buy signal. Moreover, the seasonal rhythm is positive from a historical perspective: the month of April has performed well in almost every third presidential year since 1950 (93% of the time).



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