Despite inflation - interest rates are falling

Even though August and September are not considered good stock market months, we expect good prospects for the stock markets as the year progresses, with advantages for Europe and the USA over Asia and the emerging markets. However, it is important to keep an eye on the development of inflation, interest rates and the Corona pandemic.

The authors

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

From the analyst team of DJE Kapital AG

Seasonally, August and September are rather difficult stock market months. The market technique is currently neutral, but has improved compared to the previous month. With a view to the development in the third quarter, there is little to worry about in terms of the economy, and corporate earnings should again develop well. What one should keep an eye on, however, is the development of inflation, interest rates and Covid-19. In the USA in particular, a heightened inflation environment is likely to remain with us, which should also lead to higher interest rates in the medium term. In Asia, however, and especially in China, inflation is hardly an issue at the moment. However, new lockdowns and rising covid case numbers are problematic in Asia. In the US and Europe, too, Covid is likely to gain in importance again in the autumn at the latest: If the US economy faces new pandemic burdens, the discussion about tapering, i.e. reducing bond purchases, is likely to diminish and thus the strongly positive monetary environment will last longer. We do not expect a bear market triggered by a braking policy of the US Federal Reserve, nor a strong correction in August or September. Cash and, to a large extent, bonds are no investment alternatives, so we are maintaining our high equity quotas. In the medium to longer term, the outlook for equity markets should remain good. Regionally, we continue to favour Europe and the US over Asia and emerging markets.



  • Economic situation and development of corporate profits remain positive

The global economy continues to perform well. Corporate earnings have largely surprised on the upside so far for Q2. In many cases, our companies have also raised their forecasts for the year as a whole. Producer prices are likely to remain at a very high level in the coming months, but some easing is already visible in places. For example, the leading US ISM index1 has fallen back slightly from a high level. We continue to focus on companies with high pricing power2. There is still no overcapacity in many sectors, on the contrary: very many products are still in short supply. The order books are generally well filled. Many companies would also like to fill up their largely empty warehouses, but this is hardly possible given the still disrupted supply chains.



  • Higher inflation environment should persist
  • Inflation currently mainly a US problem
  • Interest rates should rise again somewhat 

The inflation trend will remain one of the dominant topics on the capital markets. We expect inflation to remain elevated in the coming months (USA >5%). In general, inflation is primarily a US problem. In Asia, inflation rates are low (China +1.1%) and in Europe, too, inflation should not rise as strongly as in the USA. In the US, however, higher house prices could put pressure on rents in the medium term, so there is little relief in sight for US inflation for the time being. Nevertheless, we do not expect the Fed to adopt a stronger braking policy or a bear market on the stock market. Covid will again play an important role here, because in the event of new pandemic fears in the USA (e.g. there have recently been many new infections and high hospital occupancy rates in Florida) the tapering discussion could be pushed back for the time being. We think it is highly unlikely that the pandemic's still depressing effect on the economy will be intensified by monetary tapering. Despite the high inflation figures, US interest rates have recently fallen further. This is due to the ongoing bond purchases by the US Federal Reserve and US commercial banks, short covering by professional investors and a seasonally reduced supply of government bonds. Looking ahead to the coming months, however, US interest rates should tend to rise again. We therefore remain short duration.


Market technical

  • Largely neutral, but better than the previous month

Overall, market indicators have improved somewhat over the past four weeks. The NAAIM3 indicator, which measures the investment rates of institutional investors, is currently back at 78% (after 92% at the beginning of July), cash holdings have risen slightly in the global fund manager survey and the US put/call ratio4 is in neutral territory. In contrast, market breadth as measured by the US AD line5 has not improved. Very broad-based indices such as the Russel 2000, which, unlike the S&P 500, reflects small-cap stocks (US small caps), have actually fallen since February.



  • In general, we continue to pay attention to balanced portfolios
  • Better outlook for Europe and USA versus Asia and emerging markets
  • Continue to reduce healthcare underweight

We continue to favour a balanced portfolio allocation without too much overweighting or underweighting. Globally, the healthcare, real estate and technology sectors outperformed in July. In Europe, the commodities, real estate and media sectors led the way. We reduced our underweight in the healthcare sector in July and continue to recommend adding to positions. Regionally, we continue to see Europe and the USA with better opportunities compared to Asia and the emerging markets. Asia and China remain under pressure for the time being due to monetary factors (weak growth of the M16 money supply in China) and covidual factors (lockdowns in many Asian countries).



  • USD/EUR exchange rate and gold neutral
  • Commodities often well supported from a supply perspective

The recent slight dollar weakness is likely to be mainly due to significantly higher US inflation. The market technique for the USD/EUR exchange rate is neutral. In general, US dollar shorts have been reduced recently and there is less US dollar pessimism. We are also neutral on gold, with gold ETF demand still not really taking off. Gold should continue to be supported by the negative real interest rate environment. Commodity prices and non-ferrous metal prices have held up very well recently despite poorer leading indicators from China, and the often very tight supply situation should continue to help here.


1 The ISM Index (also Purchasing Managers Index, ISM Manufacturing Index or ISM Purchasing Managers Index) is an important and reliable leading indicator of economic activity in the USA. It is published by the Institute for Supply Management (US non-profit organisation). It provides information on the economic development of the coming months and is composed of several sub-indicators: New orders, production, employment, delivery times and inventories. The index indicates economic growth when the value is above 50. The survey includes 300 companies from 20 industrial sectors in the US, spread representatively across the country.

2 Companies with high pricing power are those with strong brands such as the iPhone giant Apple or those that have occupied a strong market position such as the software manufacturer Microsoft or the online retail giant Amazon.

3NAAIM (National Association of Active Investment Managers): The NAAIM exposure index tracks the average exposure of its members to the US equity markets. The NAAIM index is not forward-looking, but provides insight into the actual adjustments that active risk managers have made to client accounts over the past two weeks.

4 Put/call ratio = ratio between call and put options. If put options predominate, the prevailing opinion is that this indicates negative market sentiment (stock market sentiment). If, on the other hand, call options predominate, this indicates a positive market sentiment from this point of view. In fact, a rise in prices can often be observed after high put-call ratios. The PCR is therefore considered a contra indicator. It should be noted that under normal conditions fewer put options are demanded than call options; a balanced PCR close to 1 is therefore already considered an indication of slightly negative market sentiment.

5AD line (Advance Decline line): Market breadth indicator that shows whether more stocks are rising or falling. In order to make a statement about the health of the broad market, indicators measuring market breadth are sometimes better suited than a stock index. Especially in the case of trend reversals (top and bottom formations), the "classic" stock indices are rather sluggish. This means that if, for example, a new bear market emerges and a large number of shares have already fallen sharply, this is only recognisable in the index quite late.

6 Money supply M1 = currency in circulation at non-banks (i.e. excluding cash holdings of commercial banks) plus demand deposits (deposits without an agreed term and without a statutory period of notice) of non-banks.


Note: All information published is for your information only and does not constitute investment advice or other recommendation. Long-term experience and awards do not guarantee investment success. Securities are subject to market-related price fluctuations which may not be compensated for by the active management of the asset manager or investment advisor. This information cannot replace a consultation. All information has been provided with care and to the best of our knowledge at the time of preparation. Despite all due care, the data may have changed in the meantime. Further information on opportunities and risks can be found on the website The sales prospectus and further information are available free of charge in German from DJE Investment S.A. or at The fund management company is DJE Investment S.A. DJE Kapital AG is the distribution agent. A summary of investors' rights can be obtained free of charge in German in electronic form on the website at The funds described in this marketing document may have been notified for distribution in different EU Member States. Investors' attention is drawn to the fact that the relevant management company may decide to withdraw the arrangements it has made for the distribution of the units of its funds in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU.