Markets Update July 2024 - The summer slump on the stock markets remains absent

The usual seasonal slump on the stock markets has not materialized this year. Overall, global equities are stable and continue to trade close to their all-time highs. However, there have been notable shifts and turbulence within the equity bloc. The reason for the sector rotation was positive inflation data, which makes it more likely that the Fed will begin its rate-cutting cycle as early as September. In addition, more and more market participants are speculating that the US Federal Reserve could cut the key interest rate three times this year, each time by 25 basis points. These interest rate expectations boosted the previously heavily shunned small caps segment in particular, while the overheated technology sector was sold off.

It is striking that small caps have been more sensitive to interest rates in recent months than the highly valued technology sector. As US small caps on average have a high level of debt and below-average profitability, they are suffering particularly badly from the tightening of monetary policy. This market segment would therefore benefit disproportionately from an end to the restrictive monetary policy. By contrast, the technology sector has increasingly decoupled itself from interest rate developments following the extreme AI hype of recent months.

Trump casts shadow ahead

Donald Trump's statements, according to which he left open whether the US would defend Taiwan, the heart of the global semiconductor industry, in the event of an attack, have also weighed on the tech segment. The AI hype has cooled noticeably as a result of this unclear statement. After the attack on him, Trump seems even closer to an election victory than before. The markets are already starting to price in the possible consequences of a second Trump presidency. They do not have an existing election program to fall back on, but are dependent on Trump's typically erratic statements and comments. European equities, gold and the US dollar have recently shown conspicuous trend patterns associated with a possible Trump election victory. For example, European equities are trending weaker due to their export orientation, as Trump is pursuing a strongly protectionist trade policy. The shift in demand away from the US dollar and towards gold is due to the fact that Trump could restrict the Fed's independence, which would jeopardize global confidence in the US dollar. Professional investors can protect themselves against a possible strategic decline of the US dollar through a real asset-oriented multi-asset allocation.