8/4/22 2:24 PM - Lesezeit

Turnaround in equity and bond markets

Robert Karas

Chief Investment Officer

Summer relief

The first half of 2022 was tough and unparalleled in history. Both major asset classes, equities and bonds, closed it with a hefty loss. However, in the second half of June, the sun began to shine through the dark clouds. Finally, in July, the long-awaited countermovement on the stock and bond markets began. 

What were the triggers for the turnaround? From our perspective, investor sentiment played an important role. Many indicators we monitored pointed to exaggerated pessimism. This increased the probability of a countermovement starting soon. It remains to be seen whether this is merely a bear market rally or whether a new long-term upswing is imminent. 

Expectations tip the scales

The markets are always one step ahead of events in the economy and central bank policy. This is shown by the positive stock market development in view of the strong interest rate hikes in the USA and Europe. It is not what happens today that counts, but how expectations change for tomorrow. Here, market participants' expectations may have been too negative. 

With our neutral equity weighting, we were well positioned and with a broader upswing in the stock market, our outlook is becoming more optimistic. However, we still lack the decisive data points for an additional move into equities. 

Central banks as market drivers

As stock prices turned upward, so did bond prices - an interesting phenomenon. Again, a synchronization, this time in the more pleasant direction. In the past, strong interest rate hikes by central banks led to a weakening of the economy and declining inflation figures. This scenario has been priced in more strongly by the market over the past few weeks. 

In mid-June, we increased the remaining maturities of our EUR and USD bond strategy at an optimal time. Again, it was investor sentiment that was the deciding factor for us. Of course, catching exactly the perfect day was pure luck.

The extent of the market movements is astonishing. For example, the yield on 10-year German government bonds fell from over 1.7% to below 1.0% in just a few weeks. By extending duration, we benefited additionally from this development. 

Balance in the portfolio

The current motto of our portfolio strategy is balance. In equities, the focus is on high-quality business models that have pricing power in this inflationary environment. In the fixed-income strategy, we deliberately rely on hyper-diversification - no single security determines the success or failure of the strategy. 

Disclaimer:  This is a marketing communication. Investments in financial instruments are exposed to market risks. Past performance or forecasts are not reliable indicators of future results. Tax treatment depends on each client's personal circumstances and may change in the future. Bank Gutmann AG hereby explicitly points out that this document is intended solely for personal use and for information only. Publishing, copying or transfer shall not be permitted without the consent of Bank Gutmann AG. The contents of this document have not been designed to meet the specific requirements of individual investors (desired return, tax situation, risk tolerance, etc.) but are of a general nature and reflect the current knowledge of the persons responsible for compiling the materials at the copy deadline. This document does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell securities. The required data for disclosure in accordance with Section 25 Media Act is available on the following website: https://www.gutmann.at/en/imprint

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