Markets Update September 2024 - Market stabilization on an uncertain foundation

Global stock markets were able to quickly overcome the turbulence of recent weeks and are trading close to their highs for the year in many cases. Once again, the hype surrounding artificial intelligence (AI) is a decisive factor in this stabilization. Nvidia alone has gained a three-digit billion amount in market capitalization in recent weeks. This enormous increase in the value of one of the world's leading companies in the semiconductor and technology industry impressively demonstrates how massive AI investments are supporting the international stock markets. As the big tech companies behind these investments have immense financial resources at their disposal, they could fuel the AI boom even further. 

Little confidence in a sustainable upturn

Nevertheless, the recovery as a whole is on an uncertain footing, as important market signals do not confirm the stock market upturn and indicate recession risks. Defensive stock market segments are showing relative strength compared to their cyclical counterparts. A similar pattern can also be observed on the commodity exchanges. Cyclical commodities, such as crude oil and the important industrial metal copper, are in a medium-term downtrend, while the defensive commodity gold has recently been regularly reporting new all-time highs. Furthermore, the joy over the Fed's aggressive interest rate cut policy could be premature. This is because historically, frequent interest rate cuts within short periods of time often go hand in hand with a US recession. The risk of an economic downturn therefore remains, which should prompt professional investors to adopt a cautious investment strategy.

However, it is still possible that the US economy will manage a “soft landing”. If the downturn does not materialize in the coming quarters, the aggressive interest rate cuts could take effect with a time lag and give the real economy the necessary leeway to recover. It is true that the probability of such a favorable development is not very high at the moment. Nevertheless, this scenario should be kept in mind, as it could at least keep expectations on the stock markets high and prolong the current upswing for a while longer.