The global stock prices, and with them corporate valuations, have reached further record levels. Within the segments, the winners take turns again and again, sometimes it is large or small-cap technology stocks, then again cyclical industrial stocks or even retail and consumption. Good fundamental data from China, positive labor market data from the US, rising oil prices and a strengthening Baltic Dry shipping index signal an economic recovery on a broad front.
However, the quarterly figures of companies, especially those of the major American banks, raise doubts as to whether the enormous fiscal and monetary support measures on this scale were really justified and should not even be partially reversed. The fact that companies are exploiting this (over)- capitalization of the markets to obtain fresh capital (see for example the numerous IPOs of the so-called “SPAC” (Special Purpose Acquisition Companies) or the recent “direct listing” of the crypto trading platform Coinbase with a valuation of more than 100 billion US $) is both a logical consequence and an indication.
There is also strong tailwind for further long-term structural upward trends from the gigantic, over two (!) Trillion US $ infrastructure program of the new US President, while emerging interest rate fears can (still) be thwarted by the central banks with some prayer-wheel-like assurances of timely and strong countermeasures.
But even if the achievement of record prices does not statistically suggest a barrier to even higher quotations: Caution is currently required and a longer-lasting continuation of the huge rally should be viewed with more skepticism, especially when reviewing current investor surveys (sentiment analyses) as well as seasonal patterns.
Investors who are almost euphoric about (their) increased portfolio values, but at the same time seem to have their positions well hedged or tend to reduce them in rising markets while, at the same time, are more pessimistic about the future, do not necessarily stand for prices that will continue to rise in the short term and hope for corrections to (re)-invest at a lower level.
And the seasonality argument also indicates a breather. While April is statistically one of the strongest trading months of the year, May heralds the traditionally rather weaker summer half-year, before the stock markets usually pick up speed again in the last quarter.
Therefore, in the short term, profit-taking, and market corrections are to be expected in the next few weeks and the portfolios are to be adjusted in terms of strategic and tactical allocation.
This also includes a further shifting in titles and segments that tend to benefit from strong economic growth and a steeper yield curve and accompanied by partial hedging, provided this is appropriate from a cost perspective. In our opinion, the overarching picture of the bull market, which should be backed up by a robust and diversified portfolio of first-class quality securities, remains intact.