Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
The price rally was once again fuelled by the major US growth stocks on the NASDAQ technology exchange. Not only were the price losses from the volatile phase between mid-February and mid-April recouped, but this recovery is actually one of the strongest ever seen after such a market correction.
This is all the more remarkable given that, compared to the outlook at the beginning of the year, some macroeconomic forecasts in the US have deteriorated as a result of the intensified tariff issue and some leading indicators have weakened noticeably, the Fed has remained in wait-and-see mode due to increased inflation risks, earnings growth for 2025 is now expected to be significantly lower and the geopolitical environment is even more tense with the escalations in the Middle East.
The unexpectedly positive trend on the stock market is explained in particular by the hope of reaching an agreement in the trade dispute - even though tariffs are likely to be higher than before Liberation Day. The absence of an oil price shock despite the further escalation in the Middle East has understandably provided relief. Defensive positioning by market participants and the psychological phenomenon of FOMO (fear of missing out) are also likely to be part of the explanation.
Looking ahead, investors are likely to focus on the deadline by which the initially unrealistically high US trade tariffs are suspended in order to conclude agreements with the most important countries. Geopolitical conflicts, which have the potential to severely impact the global economy at any time, also remain on the radar. In the upcoming reporting season, the recent slight improvement in earnings revisions will be put to the test. Furthermore, the high level of national debt, fiscal and central bank policy and valuation ratios on the capital market will remain in focus.
Overview of asset classes
French and German government bonds are particularly interesting
We expect lower yields on German government bonds with a medium maturity (5 years) and remain positive here. Due to the lack of predictability of the US administration, we remain neutral on the duration of US government bonds for the time being but expect (as with German government bonds) an even steeper yield curve at the long end (10/30-year yield curve). Euro government bonds, particularly French and German bonds, are therefore being given greater consideration.
Fewer new issues expected in the summer months
On the corporate bond market, we remain cautiously positioned in US high-yield corporate bonds, despite the recent favourable yield trend. We expect risk premiums to rise in the medium term and are more cautious with this bond class compared to US government bonds. Especially as fewer new issues are expected in the summer months, liquidity on the secondary market is also likely to remain rather thin in the short term. We remain neutrally positioned on the market for euro corporate bonds.
Market enthusiasm not conclusive
Emerging market hard currency bonds benefited in June from a high risk appetite among investors, who showed strong demand for this bond class. We remain cautious on emerging market hard currency bonds and do not share the market's enthusiasm. We believe that a fair-weather scenario is being discounted here that does not match the real situation (economic dynamics, geopolitical event risks, etc.) and are currently focusing on other income generators than this bond class.
Uncertainty remains on the markets
Global equity markets have recovered surprisingly quickly from the tariff shock. Hopes of lower tariffs and rapid trade agreements currently seem to dominate. However, we continue to expect the erratic measures from the US to cause ongoing uncertainty. Lower economic growth coupled with higher inflation rates will also weigh on the corporate sector. We therefore remain somewhat more cautiously positioned in equities.
Emerging market equities were able to maintain their performance advantage
Following the mixed performance of US equities in recent months, there has been a global recovery, particularly in the developed markets. Nevertheless, emerging market equities have been able to maintain the performance advantage they have enjoyed so far this year. It remains to be seen what impact the measures taken by the US government will have on the economy. The fundamental valuation for the EM region remains quite favourable. Telecoms and financial stocks in particular have benefited since the beginning of the year.
Central bank purchases provide structural support
The international commodity markets have recently presented a mixed picture. Precious metals have recently tended to move sideways due to the easing of tensions in the Middle East. Central bank purchases continue to provide structural support. In the energy sector, supply issues are currently weighing on prices again after a brief spike in the wake of the Iran conflict. We believe that the precious metals sector will remain well supported in the coming months and remain positive for this sector.