DJE's strategy team monitors and evaluates the markets on an ongoing basis using the in-house FMM method according to fundamental, monetary and market criteria.
Risks not priced in
The negative effects of Trump's erratic tariff policy on the earnings performance of companies from various sectors do not appear to be priced in. Caution therefore remains advisable despite the temporary recovery in share prices.
After the so-called "Liberation Day" on April 2, on which US President Donald Trump announced tariffs against (almost) the entire world, a sell-off began on the stock markets. The strong recovery after April 7, 2025 is mainly due to technical factors, i.e. extreme pessimism and very oversold markets, and monetary reasons such as possible US interest rate cuts, but not to fundamental factors.
Fundamentally, the situation remains difficult: the expected negative effects of Trump's tariff policy on corporate profits do not appear to be adequately priced in at present. Many companies are no longer confident in their outlook and are reporting a clearly deteriorating environment in the second quarter. As a result, lower corporate profits do not appear to be taken into account by the markets and represent a risk for the coming months. A recession in the USA is also a possibility.
In our opinion, it therefore makes sense to stick to a cautious investment strategy for the time being: balanced portfolio, focus on defensive stocks and no extreme positioning. As soon as this phase of high uncertainty can be overcome, both monetary (interest rate cuts) and market factors (cash reserves and still a great deal of pessimism) will again speak in favor of higher share prices in the medium term.
Opportunities that we see:
The peak of the tariff burdens should be behind us: falling share prices, deteriorating economic prospects and lower approval ratings should prevent Donald Trump from escalating further in the tariff dispute. If better-than-expected trade agreements with China and the EU are now reached and a recession in the US is avoided as a result, this would be a clear positive for the markets.
More interest rate cuts than expected: Interest rates are likely to be cut more in Europe than in the US over the next few months, but there could also be more rate cuts in the US by the end of the year than currently expected. This could provide a tailwind for the non-cyclical consumer goods and personal care sectors, among others. As the world, with the exception of the USA, has no inflation problems, monetary stimulus is possible, which should have a positive effect on the stock markets in the medium term.
Defensive sectors such as German residential real estate
Among the more offensive sectors, technology (software) appears to be the most attractive
Emerging markets such as China and India: selective opportunities. Emerging markets generally benefit from a weaker US dollar. India is lowering interest rates and is only slightly affected by US tariff policy. Many companies are reporting good business in India. Increased fiscal stimulus from the government is positive for China, which is now taking on more debt. A record level of new government debt is expected in 2025.
Risks that we are monitoring:
The economic outlook has recently deteriorated further: Recently, the US recession risk has risen more sharply .
The negative effects of Trump's erratic tariff policy onthe earnings performance of companies from various sectors do not appear to have been priced in.
Oil sector: Earnings prospects for oil and gas producers have recently deteriorated due to the fall in oil prices. If OPEC continues to increase production, there is a risk of greater oversupply and thus a further fall in the oil price.
Luxury sector: The outlook here appears to be even gloomier. From an earnings perspective, price pressure could continue.
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