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FERI Markets Update July 2020 – Summer high with risks

Bad Homburg, 07/20/2020
by FERI, Dr. Eduard Baitinger
  • Megacaps with striking all-time highs
  • Exploding US government debt
  • Low volatility comes as a surprise

After temporary sell-offs, the stock markets in North America, Europe and Asia are on the rise again. As the market technical indicators are mostly positive, there does not seem to be much reason to doubt the confidence of investors. But a closer look reveals that the market now tends to exaggerate the valuation of megacaps. A key factor here is the low interest rate level. The valuation of large growth companies like Alibaba, Amazon, Google, and others depends decisively on the direction in which long-term interest rates develop. The lower the interest rates, the less future cash flows are discounted. Higher valuations are the result.

However, the fact that global long-term interest rates, led by the USA, are falling despite improved fundamentals and increased inflation expectations is extremely unusual and also incompatible with current macroeconomic theory. Obviously, market participants expect the US Federal Reserve (FED) to continue its ultra-expansive course for a very long time to come and possibly even define and defend a "hard cap" on long-term interest rates. This was the last time the FED took this measure during the Second World War to get a grip on the exploding national debt caused by the war. A similar situation is now arising again: spending to combat the economic consequences of the CoViD19 pandemic is likely to push up US national debt to a level similar to that of that time. In the long run, this debt will only remain manageable at low interest rates. Therefore, the expectation that long-term interest rates will continue to be kept down by the FED is not unfounded.

US elections as market risk

It is also noteworthy that despite the Corona crisis, despite further rounds of sanctions between the USA and China and the upcoming US presidential election, volatility is decreasing. This could be due to the phenomenon that the summer months generally show less fluctuation in price developments because activity on the capital markets is generally declining. However, this carelessness should be over by September at the latest, when the US election campaign enters its hot phase. Since Trump wants to ensure his re-election by all means possible despite a recession at home, it cannot be ruled out that he will try to win over voters with a foreign policy show of force. An increase in geopolitical risks in the second half of the year cannot therefore be ruled out. Investors must therefore expect a return of higher volatility in the markets.


About FERI

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 39.2 billion under management. A total of EUR 8.5 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.


About Dr. Eduard Baitinger

Dr. Eduard Baitinger has been Head of Asset Allocation in the FERI Group since 2015. He is responsible for quantitative asset allocation at FERI Trust, where he also manages and coordinates numerous research projects. In close coordination with the FERI Board of Directors and Chief Investment Officer, Dr. Heinz-Werner Rapp, he also represents the investment strategy of the FERI Group and its communication to clients and customers of FERI.

Before joining FERI, he was a research assistant at the University of Bremen and financial analyst for an asset manager. In 2010 he completed his studies at the University of Bremen, accompanied by a stay abroad in New York, as a graduate economist. In 2014, Eduard Baitinger received his doctorate with distinction on new approaches to quantitative asset management. Dr. Baitinger publishes regularly in academic journals and acts as academic reviewer.



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Katja Liese

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Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192

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Dr. Eduard Baitinger
Dr. Eduard Baitinger
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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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