Weekly outlook: “Recovery momentum will weaken”

The sharp correction at the beginning of the month has almost been ironed out. However, the recent momentum is unlikely to continue, according to reports. The central bank meeting in Jackson Hole is eagerly awaited. 
 

19 August 2024. FRANKFURT (Börse Frankfurt).  Since the mini-crash at the beginning of the month and the fall to almost 17,000 points, the DAX has risen by over 1,200 points. The US stock markets are also heading back towards their all-time highs. “The improvement in sentiment was caused by US data. Inflation fell - marginally - in July,” explains Christian Apelt from Helaba. This has fueled hopes of an interest rate cut.

This week, however, we will have to wait and see. US Federal Reserve Chairman Jerome Powell will give a speech at the important central bank meeting in Jackson Hole, USA, on Friday. It is hoped that this will provide signals as to how the US central bankers will proceed.

On Monday morning, the DAX stands nearly unchanged after closing at 18,322 on Friday. The data from the USA is good. There, the Dow Jones, S&P 500 and Nasdaq 100 closed with gains on Friday. However, the record highs have not yet been reached again. The only exception is gold: the price of a troy ounce recently climbed to USD 2,508.78 - a new all-time high.

“Surprisingly positive” reporting season comes to an end.

Alexander Krämer from Commerzbank believes it is too early to speak of a lack of concern. Even if the implied volatilities on the equity and bond markets have fallen, they are still a long way from the lows of the first half of the year. He assumes that the recent recovery momentum on the stock markets will weaken this week. “The fact that the surprisingly positive reporting by US companies for the second quarter - at least in terms of earnings - is coming to an end should also contribute to this.” However, the basic mood for equities remains friendly. This is also reflected in the inflows into equity funds: “This week saw inflows of USD 11.5 billion. The trend has now been in place for 17 weeks and has not been interrupted by the turmoil of recent weeks.”

Change of style to “calm nerves”

Björn Jesch from the fund company DWS suspects that the market turbulence at the beginning of the month is still in the bones of some investors. He points to the “historic dimensions” of the price slump in Japanese equities, for example, and the inconsistent overall picture. Jesch therefore advises more diversification, for example with more defensive stocks and fewer tech stocks. DWS already switched from the quality factor to the minimum volatility factor in its multi-asset model portfolios at the beginning of July. The growth and quality factors have performed best over the past twelve months. “However, they are heavily dominated by the large technology stocks.” In the quality index, for example, 38 percent of market capitalization is accounted for by the ten largest stocks, while only 15 percent is accounted for by the minimum volatility index. “We currently see no reason to deviate from this strategy, as we expect the markets to remain nervous.”

Seasonality speaks against an unchecked upward trend 

According to chart technician Christoph Geyer, the upward movement still lacks market breadth. “Turnover is stable at a low level and has only picked up slightly in the last few days,” he explains. Apparently, the breadth of market participants still lacks confidence. Seasonality also does not yet indicate an increase without a further correction. “Overall, however, the situation has improved.”

Important economic and business events of the week

Wednesday, 21 August 

20.00. USA: Minutes of the US Federal Reserve meeting on July 30/31.

Thursday, 22 August 

10.00 am. Eurozone: Purchasing Managers' Index August. According to Commerzbank, the combined Purchasing Managers' Index for the manufacturing and service sectors in the Eurozone is likely to have fallen slightly to 50 points. The index value is thus on the borderline of the range that indicates a contraction of the economy. 

13.30. Eurozone: Summary of the ECB meeting on July 18.

Start of the central bank meeting in Jackson Hole/USA. Until Saturday, August 24, the monetary policy symposium will take place in Jackson Hole, this time with the title “Reassessing the Effectiveness and Transmission of Monetary Policy”, as DekaBank reports. The topic will therefore be the question of why the Fed's extremely restrictive monetary policy has had so little impact on the economy. In addition to Fed Chairman Powell's speech (Friday, 4 p.m.), the interviews with various central bankers are also likely to be of interest from a market perspective.

From: Anna-Maria Borse, 19 August 2024, © Deutsche Börse AG