The market has realized that the US Federal Reserve is unlikely to cut interest rates so quickly after all. However, the disillusionment about this is limited - the companies' quarterly figures and their outlook are too good.
27 May, 2024 FRANKFURT (Frankfurt Stock Exchange). The DAX continues to tread water. "There is currently no sign of rising interest in equities," notes Helaba analyst Ulrich Wortberg. The declining interest rate hopes in the USA are still a burden. The DAX stood at 18.709 points on Monday morning. At the close of trading on Friday, it stood at 16,693 points. The US stock markets ended trading with gains before the weekend: The S&P 500 rose by 0.70 percent to 5,305 points, the Nasdaq 100 by just under 1 percent to 18,808 points. Today, Monday, is likely to be quiet: The stock exchanges in the USA and the UK will be closed for the holiday.
According to Wortberg's colleague Markus Reinwand, the indices are technically overheated in the short term due to the recent sharp rise in prices. A consolidation is therefore healthy in order to prevent the gap to the 200-day line from becoming too large. He assumes that the frequency of wave movements will increase overall in the coming months - with moderate price gains on balance. The environment for equities is currently still favorable. "Therefore, you shouldn't get rid of positions too early and simply let profits run."
AI fantasy, subsiding interest rate fears, global economic stabilization
According to Robert Halver of Baader Bank, more hawkish tones in the minutes of the last Fed meeting, i.e. pointing to high key interest rates, have irritated the stock markets. However, they caused less and less disillusionment. "This is also due to the realization that the Fed's interest rate policy cannot really be described as restrictive," says Halver. In any case, growth expectations and balance sheet figures from the semiconductor sector are providing support. It is also encouraging that analysts are continuing to raise their net profit expectations for "Corporate America" for the next twelve months. Consolidations are to be expected from time to time. "However, in view of the AI fantasy, the easing of interest rate fears, global economic stabilization and the absence of major real geopolitical conflicts, share sentiment remains stable."
"Powerful engine" for the stock market
According to Marthel Edouard from Weber Bank, there is also a lot to be positive about equities at the moment: "In addition to the improved economic data from Europe and the attractive dividend payouts, this is primarily due to the strong results of the corporate reporting season." In the USA and Europe, around 70 percent of companies have exceeded expectations, in some cases significantly. Moreover, the surprisingly good earnings performance was not limited to individual companies or sectors, but was convincing across the board. The current market environment of an improved economy, a strong labor market and easing cost pressure on companies is proving to be a powerful driving force. The outlook is also hardly worse. Overall, the bank is sticking to its positive medium-term assessment for the stock markets. However, the numerous geopolitical crises and the resurgent trade conflict between the USA and China could cause short-term disruption.
Important economic and business events of the week
Monday, 27 May
USA: Memorial Day. The markets remain closed.
10.00 am. Germany: ifo Business Climate May.
Wednesday, 29 May
2.00 pm Germany: Consumer prices May. Commerzbank expects 2.3 percent year-on-year.
Friday, 31 May
3.30 am. China: Purchasing Managers' Index May. According to DekaBank, industry has been the most important pillar of the Chinese economy in recent months. At 50.2 points, the Purchasing Managers' Index for the manufacturing sector is likely to have remained above the expansion mark of 50 points in May, thus confirming the positive trend.
11.00 am. Eurozone: Consumer prices May. According to Commerzbank, the inflation rate is likely to have risen slightly to 2.5 percent in May. The core rate will probably end its downward trend for the time being and amount to 2.7 percent as in the previous month.
2.30 pm. USA: Price index consumer spending excluding food and energy April. The index is likely to have risen by 0.3 percent compared to the previous month, according to DekaBank. But even a slight undershoot would mean that monthly price momentum is above the Fed's target range.
By Anna-Maria Borse, 27 May, 2024, © Deutsche Börse AG
Anna-Maria Borse is a financial and business editor specializing in the financial market/stock exchange and economic topics.
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