The high point of economic indicators is not high point of shares

Current market commentary

The peak of economic growth rates is behind us and growth worries are back. At least, that's how it seems when you look at recent market developments. Despite massively rising consumer prices - especially in the US - defensive and growth stocks have recently been able to perform significantly better than value stocks. Yields on safe government bonds have fallen significantly - temporarily to 1.25% for 10-year US government bonds. The broad equity market, on the other hand, rose. The good news is that even if the peak of some economic indicators is behind us, equities should continue to perform positively in the medium term in a positive economic environment. However, after a strong first half of the year, we still expect a bumpy summer and limited upside potential until the end of the year. High valuations, Covid-19 fears, low trading volumes over the summer and high investor equity allocations argue against significantly rising markets for the time being.

Short-term outlook

The next few weeks will be revealing on both a macro and micro level. The ECB and the Fed will decide on the future monetary policy at their monthly meetings on 22 July and 28 July. At a micro level, more than 65% of the S&P 500 and more than 55% of the STOXX 600 companies (by market capitalisation) report their Q2 numbers in the next two weeks. The market expects year-on-year earnings growth of over 65% for the S&P 500 and over 105% for the STOXX 600 - so the bar is set high.

Economic data also remain exciting amid market discussion of a slowdown in growth. This Friday, the preliminary Markit Purchasing Managers' Indices (Jul.) for the Eurozone, the US and the UK are due. In addition, retail sales (Jun.) for the UK will be published. The following week will see the Ifo index (Jul.) and inflation data (Jun.) for the eurozone and preliminary Q2 GDP data for several countries.