Has the bottom already been reached?

The world stock index in euros is down by around 23%, technology stocks by around 30% and European stocks by almost 20%, depending on the index. Those who bet more heavily on bonds were also bitterly disappointed this year, as safe government bonds in Europe fell by around 14% across all maturities. Corporate and high-yield bonds have not lost much less, even though the interest rate sensitivity (duration) is much lower here.The world stock index in euros is down by around 23%, technology stocks by around 30% and European stocks by almost 20%, depending on the index. Those who bet more heavily on bonds were also bitterly disappointed this year, as safe government bonds in Europe fell by around 14% across all maturities. Corporate and high-yield bonds have not lost much less, even though the interest rate sensitivity (duration) is much lower here.

The question many are asking themselves is: Has the bottom already been reached? The reason for this development is well known: inflation figures such as we have not seen since the 1980s. Initially, these were seen as a short-term phenomenon of the pandemic and the global recovery picking up again. With the war in Ukraine and the subsequent sanctions, the price increases became firmly entrenched. The ultra-low interest rates of the last few years have carried equities as well as bond markets to lofty heights, so the change in direction is now all the more violent. The current yield levels after years of negative interest rates are positive for investors; currently one can buy ten-year Austrian bonds with a yield of 2.2% and German bonds with a yield of 1.7%.

What are the factors to keep an eye on? The forecasts do not go up to two to three percent until the end of 2023. It is to be hoped that, as is widely expected, we have now seen the peak of price inflation. That will depend mainly on the so-called second-round effects, i.e. whether higher prices also push up wages and salaries. What are the factors to keep an eye on? The forecasts do not go up to two to three percent until the end of 2023. It is to be hoped that, as is widely expected, we have now seen the peak of price inflation. That will depend mainly on the so-called second-round effects, i.e. whether higher prices also push up wages and salaries. 

As far as bonds are concerned, the question is how much real interest on government bonds will be allowed by the ECB. In recent years this has been negative, but in the long term it has always been between one and three per cent.
On the question of whether we expect a recession in the USA and or also in Europe, we look primarily at the purchasing managers' indices, which have deteriorated but are still mostly above the critical 50-point mark. These leading indicators show 57.0 in the USA and 54.2 in the euro zone. Other indicators also do not currently point to a recession. 

For a sustained improvement in the capital markets, a significant decline in the inflation figures is needed, so that we can really assume that we are moving in the direction of two to three percentage points of inflation.
In the current quarter, a slight decline in corporate earnings growth is expected in the US and Europe. Recovery in earnings expectations is then in sight from the third quarter onwards. In view of the uncertain outlook, we should hold off on buying equities. Currently, we remain underweighted in the equity markets and as short as possible in bonds.