Market Outlook: Defense is King

Since the beginning of the year, stock indices have risen by more than 16%, and the upcoming summer months generally tend to be quiet as regards the markets. However, this year could be different. 

Central banks on both sides of the Atlantic seem to want to outdo each other with further monetary policy measures. While the ECB plants to implement “more stimulating measures” which could ultimately lead to negative interest rates in the eurozone, the next US interest rate cut seems to have already been priced in in July. In particular, a loose monetary policy supports the President of the United States and his ambitions for re-election, as the negative consequences of his tariff policy have to be somehow compensated. The investor’s hope for continued strong equity markets by eternally cheap money is deceptive, as the current problems remain unsolved, and despite stimulation, no real economic improvement seems to be likely to occur. 

Global growth could continue to decline due to geopolitical tensions within the USA-Iran conflict and the possible third round of tariff increase by the USA against China, not to mention the remaining risks in the Eurozone (Brexit, Italy). 

Even though an agreement in the trade conflict (which is not visible today) could fuel the markets in the short term, a correction within the next months seems to be unavoidable – albeit to a limited extent – as low overall interest rates would cushion a massive sell-off. 

Investors should, therefore, be alerted and realign their portfolios more defensively. These include solid dividend titles, top-rated Bonds, and gold, as the recent price increases of these asset classes have shown. It should also be avoided to invest in industries which would be negatively impacted from a further tariff increase by Trump against China.