The Authors: DJE’s strategy team continuously monitors and evaluates the markets using the company’s proprietary FMM method, which is based on fundamental, monetary, and technical criteria.
Overall, June was a positive month for equity markets. The broad European market outperformed both the German equity market and US stock markets. In euro terms, the Japanese market also posted strong gains. At the sector level, healthcare, financials and industrials were among the main winners in June, while communication services, energy and materials lagged behind.
Looking ahead to July, we remain constructive overall. The broader picture still points to a supportive capital market environment. In both the US and Europe, rate cuts currently appear more likely than rate hikes, there are no signs of a recession, and earnings revisions remain positive. Seasonal factors are not unfavorable either. In particular, the statistics for the first half of July tend to point to stable to friendly markets.
Another supportive factor is the marked easing of the energy crisis in recent months. Europe, in particular, stands to benefit, given its greater sensitivity to oil and energy prices. On a relative basis, the picture for Europe has also improved somewhat. Valuations do not look stretched, the energy backdrop has become more favorable, and economic surprise indicators are improving from a low base. At the same time, the US economy continues to show resilience. Taken together, this suggests that both Europe and the US can perform well in what remains a constructive market environment. Investor positioning also does not appear excessively euphoric at this stage and therefore looks more stabilizing than destabilizing.
Opportunities we see:
Software: Within the technology sector, investor focus could increasingly return to software stocks. If capital rotates out of semiconductors into other areas of technology, software names could benefit.
Gold: Following the correction of recent months, sentiment toward gold and gold miners has deteriorated significantly. Historically, such negative sentiment has often signaled improving prospects ahead. In addition, central banks are likely to continue increasing their gold holdings over time.
Real estate: Falling interest rates support real estate stocks, particularly in the residential segment. At the same time, new construction activity remains subdued in many key markets, limiting supply. Real estate stocks in Hong Kong also remain interesting in this environment.
Longer-duration bonds: Declining interest rates could benefit bonds with longer maturities.
Emerging markets: A US dollar that does not continue to appreciate sharply, combined with falling interest rates, would support both equities and bonds in emerging markets. Easing energy price pressure could provide additional tailwinds.
Technology and AI infrastructure: Short-term pullbacks do not change the fact that the buildout of AI infrastructure remains a long-term trend. The investment plans of major technology companies continue to point to high spending in this area.
Risks We Are Monitoring:
AI infrastructure / semiconductors: In the short term, the risk of a correction in semiconductors remains. The market is increasingly debating whether the extreme shortage in computing power is easing and whether technological advances could alter future capacity needs.
Earnings momentum in semiconductors: One risk is that the earnings peak in the semiconductor sector could already be reached in 2027 or 2028. Historically, markets have often reacted early to such turning points.
Corporate budgets for AI: Rising costs for AI applications could lead companies to rein in spending more aggressively. That could weigh on demand for certain applications.
Oil price: Inventories remain low. As a result, a short-term rise in oil prices is possible. That could temporarily weigh on the market environment, even if it does not necessarily change the broader picture.
US monetary policy: A more restrictive monetary policy stance in the US has not yet been fully priced out by the market. Even though expectations of further rate hikes have declined recently, the Federal Reserve remains a key source of uncertainty.
Yen / carry trade: Sharp moves in the yen can trigger an unwind of existing carry trades, meaning leveraged investments financed in low-yielding currencies and deployed in higher-yielding markets. This has the potential to weigh on technology stocks in particular over the short term.
Rates market: Heavy bond issuance by large technology and infrastructure companies could crowd out demand for government bonds and put pressure on the long end of the yield curve.
Software disruption: Over the longer term, it remains unclear to what extent artificial intelligence will reshape established software business models. The disruption risk in this area cannot yet be assessed conclusively.
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