Catch-up potential until the end of the year
Looking ahead to November and the remainder of the fourth quarter, we are somewhat more confident than in previous months. A recovery on the markets is possible. Historically, November has always been a positive month after previous losses in August/September/October, based on the US S&P 500 index. In our view, there is catch-up potential on the equity markets until the end of the year. In bonds, longer durations and selected emerging market bonds may offer opportunities. However, the monetary situation remains negative and the economic situation is also likely to remain difficult. However, there is short-term support from market technology indicators.
The authors
From the strategy team of DJE Kapital AG
DJE's strategy team continuously monitors and evaluates the markets using its proprietary FMM methodology based on fundamental, monetary and market technology indicators.
Opportunities
- High-quality bonds
Bonds from investment grade with a term of up to 5 years and also selected longer-dated (government) bonds. 2024 could be a year of (good) bonds. - Emerging market bonds
Selected emerging market bonds, e.g. from Brazil or Mexico in local currency. - Companies …
- … with savings potential
Internationally positioned (and already favourably valued) European companies with major cost-cutting potential. - … with interest rate potential
Beneficiaries of the changed interest rate environment or high interest rates, including, for example, insurance companies or stock exchange operators. - … with low debt
Quality companies with high margins, low debt and high pricing power (e.g. from the pharma and tech/AI sectors) that can maintain or expand their margins.
- … with savings potential
Risks
- Declining money supply
Significant decline in M1 money supply aggregates in the USA and Europe; the correlation between the stock market and money supply development is historically higher in Europe than in the USA. - Expectations too high
The market's earnings estimates for 2024 (S&P 500 earnings +12%) appear too high. - Real Estate
Continue to exercise caution with commercial property and companies with high commercial property exposure. - Recession
We see a deep and prolonged recession in Germany and Europe as a potential risk and are therefore cautious about stocks/shares that are heavily dependent on German and European domestic consumption.
Market Technology Indicatores
Sentiment is supportive in the short term. There are several anti-cyclical reasons for this:
- the current decline in equity investment in the NAAIM Exposure Index (indicator for the average equity exposure of active US fund managers),
- an increase in the put & call ratio in the USA (more put options are being bought than call options) and
- a decline in the Fear&Greed indicator (which measures whether fear or greed prevails among investors; if the market is too optimistic, i.e. too "greedy", even small disappointments can lead to sell-offs, so a decline in this ratio should be viewed positively). The indicator is currently in the fear zone.
From our point of view, the market technique thus opens up opportunities for a short-term recovery. The euro could also recover in the short term, mainly due to the now very high euro pessimism. Gold remains interesting as an add-on: there is currently little optimism on the gold market, but purchases from China could pick up structurally and demand from ETFs could potentially pick up if real interest rates fall again.
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