Under the surface, equities are also pricing in less economic optimism

Current market commentary

While there is little to see at the index level and the S&P 500 is even at an all-time high, there is plenty of movement below the surface. Cyclical sectors have tended to be among the underperformers in the last 2-3 months, despite positive earnings revisions, as the rise in COVID-19 cases has dented investor sentiment. Technology stocks, on the other hand, rallied strongly. Bond yields on safe government bonds continued to fall. In addition to future central bank policy, the decisive factor for the further development of stock markets is the extent to which the spread of the Delta variant burdens economic growth. Currently the risk still seems low, but if there is no containment, the optimistic consensus economic forecasts will probably have to be revised downwards. Many market participants have already become more cautious and have hedged, which is why the stock market should have a hard time falling significantly without an external trigger.

Short-term outlook

The better-than-expected Q2 reporting season is slowly coming to an end. In the S&P 500, over 400 companies have already reported. More than 80% of these companies beat earnings expectations. Monetary policy should also be quiet in the next two weeks, as the Fed Economic Forum (Jackson Hole) will not take place until the end of August and the ECB will not meet until early September. On the other hand, the economic situation is likely to remain exciting. On Tuesday, the ZEW Indicator of Economic Sentiment (Aug.) for Germany and on Wednesday consumer price inflation for the US will be released. Industrial production data (Jun.) for the UK and the Eurozone as well as preliminary UK Q2 economic growth will follow on Thursday. US consumer confidence (Uni Michigan, Aug.) will be released on Friday and US retail sales (Jul.), US industrial production data (Jul.) and the Empire Manufacturing Index (Aug.) the following week.