According to experts, after a half-year on the stock market to forget, there is no improvement in sight any time soon. Fear of a recession continues to shape investor sentiment. Nevertheless, profit expectations for 2022 and 2023 are still too high, warns Dirk Steffen, chief investment strategist at Deutsche Bank. “As a result, negative earnings revisions could increase as Q2 earnings season begins, weighing on equities despite their now lower valuations.”
“Monetary policy is moving from the Covid emergency program to an anti-inflationary framework,” explains Chris Iggo, chief investor at asset manager Axa Investment Managers. “This transition is painful. Covid-era valuations boosted by excess liquidity are gone, higher bond yields are putting pressure on stock valuations and there is a risk that the earnings cycle will weaken soon.”
A possible gas supply stop by Russia is also causing stockbrokers a headache. “The economy needs energy, and if its supply is no longer guaranteed, it’s about risk limitation and no longer about growth and expansion,” says analyst Jochen Stanzl from online broker CMC Markets. “The German economy is in the process of switching to a kind of emergency mode.”
Because of the Ukraine war, the galloping inflation and the fear of a recession due to excessive interest rate increases by the central banks, the past half year was the weakest for the DAX in 14 years with a minus of 20 percent. The leading German stock market index also posted its fifth weekly loss in a row, and a mini gain of 29 points or 0.2 percent on Friday did not change anything. The DAX entered the weekend with a level of 12,813, also thanks to Wall Street showing stronger trumps in trading. The leading German index is currently being assessed somewhat more firmly at around 12,850 points. Wall Street is closed for the holiday.
The topics of the past weeks and months continue to be decisive. Today, for example, consumer prices in Switzerland are on the agenda, as are those EU producer prices. The latter had risen significantly in the previous months, a sign of ongoing price pressure. The ECB should take a close look. Appropriately, Council member Joachim Nagel will address the topic at the Frankfurt Euro Finance Summit and speak about the possible direction of monetary policy. A speech by ECB Vice President Luis De Guindos is also planned for the evening.