This summer, attention has shifted away from trade wars and politics, back to monetary policy. Equity markets have had one of the best half-year performance, with the S&P 500 registering its top ytd returns in 20 years. The historic rally is also notable given the backdrop of a near market meltdown in Q4, owing to concerns on monetary tightening compounded by global trade tensions. The tide that lifted all boats was the new wave of ultra-accommodative monetary policies, at this stage announced but not yet delivered. The overall narrative in the market seems to be that the glass is half-full. The economic cycle will be extended by central banks, interest rates will remain low for longer and risky assets will remain supported. This is all taking place against the backdrop where overall, valuations are less compelling than they were at the beginning of the year, although are not too stretched. All good then?
Although it was vise to resist falling for the darkest pessimism at the end of last year, it is, however, vise to refrain from joining in with the excessive optimism. After the current exuberance, the focus will return to fundamentals and reality, which are decent, but not that exciting. It is true that there is no imminent recession risk, and a moderation of growth is the more likely scenario. It is also true that financial conditions have eased materially over the course of several month. However the quality of growth is poorer than a few months ago: global trade is weaker than expected, with limited upside in the short term, and the flat yield curve in the US is discouraging animal spirit. Business confidence indicators are in a downtrend across the board, as well as all of the manufacturing PMIs. Domestic demand growth and employment is still good overall – consumption the main engine of growth – but it is important to test its resilience and the spillover from trade weakness. Another important test for the equity market will be the reporting season that is currently underway.
Equity markets continued to build on the June recovery (+5.6%) that followed a miserable May (-6.1%). The MSCI World Developed Markets Index rose 1.1% (+16.6% ytd) with advances in all regions. The global benchmark has now provided six monthly gains in 2019 and the best seven-month start since 1998 (+17.0%). Three of the primary US benchmarks (S&P 500, NASDAQ and DOW) achieved all-time closing highs during the month. The S&P 500 closed above 3,000 for the first time on July 12th and reached its closing high of 3,025.86 on July 26th. It fell back 1.5% from this level to close out the month 1.3% higher (+18.9% ytd) but below 3,000. Gains for European benchmarks were much more modest and mixed regionally: the STOXX Europe 600 is up 0,2 % in July (+14.3% ytd), while the DAX was down -1,7% (+15,4%). The ATX Index Index gained 0,2 % (+8,7% ytd) with Utility company Verbund (+10%) being the strongest performer, followed by OMW (+5,7%) and Immofinanz (+5,5%), whereas FACC (-11,1%) being the worst performer in the month.
Autor:
Andreas Wosol, CFA
Head of Value Amundi Asset Management
Senior Portfolio Manager – European Equities
Head of Equity
Amundi Austria GmbH
Member of the board of ÖVFA
2 August 2019
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Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.