GDP growth in the developed world should remain well above trend in H2. Leading indicators in the major economies signal, that global growth will not register a major slowdown until next spring. Our understanding is that the decision has been taken by the Fed to initiate the reduction of its asset purchases before year-end.
It seems to us that a bottom in treasury yields has been established, corresponding to the area 1.10-1.15% for the yield of the 10-year benchmark T-note. In the next months the combination of the Fed’s tapering, persistent upward pressure on costs and the declining influence of China’s policy decoupling should tend to push yields upwards. The current trading zone between 1.20% and 1.40% of the 10-year benchmark is probably optimal from the perspective of the major US equity indices.
September is a notoriously difficult month for equities. We believe that the probability is high for a rapid correction of the 200-300point variety in the S&P500. The S&P500 is moving up to the 4450-4600 area that was our target for the entire year. We would be very surprised if this benchmark could extend beyond this zone without a significant pullback. A host of indicators signal that the US equity market is over-bought and weakening internally whilst many investors are over-committed.
However, we don’t think that downside market risk is substantial at this time. We doubt that we will see the S&P500 below the 4200-4300 zone. The determination of the Federal Reserve to use securities markets to reflate the economy promises to remain the dominant influence upon the investment landscape into 2022. By the end of spring of next year we envisage the S&P500 attaining the threshold of 5000. Volatility could increase as the bull market matures. We expect that the European and thus also the Austrian stock market will follow the trends in the US stock market.
Author:
Thomas Neuhold, CFA
Head of Austrian Equity Research
Kepler Cheuvreux
1 September 2021
 |  |
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.