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A slight easing of inflationary dynamics and profit forecasts above expectations have provided a strong boost to the stock markets in recent weeks. After the stock markets reached their lowest point of the year so far in mid-June, the mood among investors has thus brightened again somewhat. Nevertheless, exaggerated euphoria is not advisable. The current price gains are a temporary recovery within an overarching downward trend. The foundation on which the current recovery is based remains extremely fragile.
Even though the US economy has recently sent some signs of easing, corporate profits remain a critical factor. Wage pressure from the upswing in the labour market and higher purchase prices mean rising costs for US companies. Since high inflation in turn leads to negative real wages, a full pass-through of these costs to consumers seems impossible. Added to this is the strong appreciation of the dollar. US export goods will become more expensive as a result. This could be felt above all by the large US stock corporations, which generate a substantial part of their profits abroad. Already, earnings estimates, which are updated on a daily basis, are showing declining earnings momentum. If the pressure on margins continues to rise, cuts in profits are inevitable.
Another factor that clearly contradicts the current interim high on the stock markets is the renewed rise in interest rates. This connection is still largely ignored. Leading central bankers of the Fed have recently pointed out emphatically that key interest rates - especially with a view to 2023 - could rise significantly more than currently expected. Investors should therefore not chase share prices, but wait until the future path of interest rate increases becomes clearer. If the markets are surprised by larger interest rate steps in the coming months, renewed corrections on the global stock markets are likely. Then it would be a good time to buy up.