The authors: 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.
After the sell-off at the beginning of August, a strong catch-up movement quickly set in. On a monthly basis, the global share index and the US S&P 500 ultimately moved largely sideways, while the US technology stock market fell slightly. Germany and Europe fared better. Japan's Nikkei was also only marginally down at the end of the month despite the massive correction at the beginning of the month. Globally, real estate and utility stocks as well as consumer staples and pharmaceutical stocks were the best performing sectors in August, while energy and cyclical consumer stocks were particularly disappointing.
Outlook for September
September is seasonally the weakest month of the year. The start to September was correspondingly slow and a consolidation, including slightly weaker markets overall, is conceivable. Inflation is still clearly on the decline and interest rate cuts are therefore to be expected. If there is no recession in the USA (around 76% of global investors expect a soft landing for the US economy), the markets could rise again more strongly, especially after the US elections.
Looking ahead to the next few weeks in September and the beginning of October, there is likely to be a phase of heightened uncertainty. We continue to see Japan and sectors/industries that benefit from interest rate cuts, such as real estate or utilities, as offering good opportunities.
Opportunities that we see
Japan continues to have the lowest real interest rate internationally and Japanese equities have the best equity risk premium; the earnings outlook for Japanese companies remains good overall and the structural story in terms of improving returns on equity remains intact; the Tokyo Stock Exchange reform also remains an important driver; within Japan, we continue to favor domestically oriented stocks and financials over export-oriented stocks
Selected emerging markets, such as Indonesia, have benefited disproportionately from (US) interest rate cuts in the past; Indonesia is also attractively valued analytically
Market breadth could improve, bringing smaller stocks back into the focus of investors
The risk/reward ratio on the bond side remains good in the medium term, as the weakness of the US consumer and the weakening US economy are likely to put further downward pressure on inflation
We consider equities and sectors that benefit from falling interest rates, such as utilities, real estate, healthcare/pharma and defensive consumer stocks, to be interesting
Risks that we are monitoring
From a valuation and market technical perspective, more caution is currently warranted for some technology stocks. A certain degree of overoptimism or overinvestment is still evident; the euphoria/enthusiasm surrounding the AI theme is already waning, which is why high valuations in particular give cause for caution
A victory for Kamala Harris does not appear to be priced into the markets: the main risk here is the increase in corporate taxes from 21% to 28% and the resulting burden on corporate profits
China continues to perform weakly; positive impetus from China for the global economy is not to be expected - on the contrary, Chinese overcapacity could have a negative impact in some areas.
Euro vs. US dollar
Currency developments remain difficult to assess. However, it is clear that inflation in the USA could fall more sharply than in Europe. Wages are currently rising more strongly in Europe than in the USA. There, on the other hand, the important inflation component "shelter" (rents) is stagnating. This could point to further interest rate cuts and thus to a weakening of the dollar against the euro. In the event of a Trump election victory, however, we continue to expect rising import tariffs, which would in turn strengthen the US dollar.
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