Is the stock market party coming to an end?

The record-breaking spree in the stock markets recently at least took a pause. The Middle East conflict and persistent inflation in the US are causing uncertainty. Can the upward trend continue? In our strategy, we assume that the environment for stocks remains favorable.

Positive economic indicators

The indicators for the economy are becoming more positive, leading to higher profit expectations for companies. Analysts expect a moderate increase of 5.6% for this year, but anticipate 15% for 2025. So, there's a trend reversal here that should positively impact the stock markets. Another positive aspect is the recession indicators, which are steadily improving, more so in Europe than in the USA. These include, for example, labor market data or purchasing managers' indices. Historically, the months following the last interest rate hike have almost always been very favorable for stock investors. Assuming the average duration of a bull market, the current stock market party could last until August 2025. According to our Bull/Bear model, the market could still increase by 16%. We see that the market has gained breadth, meaning the positive trend has been supported by a greater number of stocks. However, a correction is always possible due to the volatile geopolitical environment.

When will the interest rate cuts come?

In addition, interest rate cuts are still pending, the fight against inflation is not yet definitively won. Although an ECB rate cut in June is likely, the probability is no longer 100%. In the US, due to recent inflation figures, a first interest rate cut in June or July is rather unlikely. September would then be the next date, but a rate hike just before the elections is unlikely. So, the first interest rate cut may not occur until after the elections in November, or worst-case scenario, not until 2025. However, if the US economy continues to perform robustly, this may not be a bad environment for stocks.

Disclaimer:

This information represents the market opinion and investment strategy of Kathrein Privatbank Aktiengesellschaft and aims to provide a general overview of current market data; it is not a direct or indirect recommendation for a specific investment strategy in the sense of financial analysis. Fluctuations in prices due to market changes are possible at any time when investing in securities. Past performance is not a reliable indicator of future results.