Light summer freshness on the stock markets

After a first half-year marked by inflation, the threat of recession and the ongoing Russia-Ukraine war, markets recovered somewhat in July. The US equity market continues to offer the better risk-reward ratio. And profitable companies are the trump card.

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

After a very difficult first half of 2022 - measured by the S&P 500 with a price loss of 20.6% in US dollars the worst since 1970 - July brought a recovery on most stock exchanges thanks to good to very good corporate results for the second quarter. The US stock market in particular was able to recover more strongly. Compared to Europe and Germany, we continue to see a better risk-reward ratio there. China, on the other hand, remains difficult to assess, so we continue to exercise caution. Overall, we consider equities to be promising and increased the equity allocation in July, which we will continue to do in August for the time being. From our point of view, the majority of technical market indicators speak in favour of this - they give buy signals. Nevertheless, we will continue to act prudently and avoid excessive risks.

 

Equities/Bonds

    • Maintain current investment ratios
    • Focus on companies with high pricing power
    • Selected bonds continue to offer good opportunities

 The market-driven recovery could continue in August. We will therefore maintain the current investment ratios for the time being. On the equity side, we still consider a focus on high-quality companies with high pricing power to be sensible, as these can generate solid profits even in a low-growth environment and thus probably offer the best investment alternative in the long term. Fixed-income securities performed very well in July in some cases. In our view, selected bonds continue to offer opportunities. Both in the USA and in Europe, one can still find attractively yielding bonds - with still manageable maturities.

 

Economy / Regions

    • USA attractive
    • Germany and Europe favourably valued, but at risk
    • China remains difficult

For us, the USA is currently the equity market of choice, as we see the best risk-reward ratio there compared to the other major economies. The equity markets of Germany and Europe are favourably valued in our view. Moreover, the euro area as a whole is supported by monetary developments. But the further rise in energy prices poses major economic risks. China remains very difficult: we consider the trend towards further nationalisations - especially among private real estate developers - to be a cause for concern, as well as the continuing consumption and economic burdens due to the zero-covid strategy. Furthermore, the geopolitical risks due to a possible escalation of the conflict over Taiwan are also worrying.

 

Currencies / Basic Resources / Gold

    • US dollar appreciation could lose pace
    • Euro recovery possible

We think it is possible that the US dollar appreciation will not continue at the current pace. Should the US central bank act less restrictively or signal this, the euro could recover somewhat against the US dollar. Market factors also speak in favour of this.

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