Market Monitor
05/2017

«The Trend is your Friend»

Equity markets started with a positive basic sentiment into 2017. Satisfying economic and company figures, which were mainly above expectation, and an interest environment, which gives nearly no alternatives to equities, are the basics for this positive trend. The US market led the trend during the first three months of this year with new, all-time highs. The Trump-effect detracts from possible disturbing factors.

There are many clouds in the sky and there are many reasons why we should see a correction. The hazardous situation with North Korea is ignored as well as there are elections coming in Europe. The evaluation of equities is quite high but investors seem to ignore that while we have to look at the price of single companies differentiated. As long as the markets are rising one should not fight against the trend, following the rule: “The Trend Is your Friend”.

Not to be invested can lead to uncomfortable effects. One will miss important upswings even the potential of a setback is quite high and only little events could be the trigger to start a long expected correction.

The elections in France showed how reality looks like. A reluctant development in equity prices resulted after the first victory of Mr. Macron, giving Mme. Le Pen very little chances to be elected as president in the second run, an eager jump which led to a steep upswing in European Stock markets, being supported by the final election of Emmanuel Macron as French President. European Equity markets are showing mostly double digit gains this year. EUR as currency also became strong especially against USD because market participants believe that the anti-European sentiment should be stopped.

The outlook for equity investors is good. Day by day there are further positive economic figures, which are not exuberant but are giving a solid base for equity markets. Interest markets look much more unsecure. With an inflation rate of 2,4 % for the last 12 months and a solid employment market in the US, one can argue that the FED did the right steps with their decision to raise interest rates. Our question is: How long will and can Europe follow this policy of negative interest rates and flood the markets with massive liquidity? German Government Bonds yield up to 7 years’ maturity negative and even corporate bonds show extremely low yields despite higher risk.

Surprisingly negative was the reaction of oil and the prices of precious metals in such an environment. Gold lost about 5 % since mid of April and USD trades 5 % lower than beginning of January this year. Oil is traded below 50 USD.

The situation remains interesting. Although we see some clouds, which could develop to big thunder clouds shortly, we expect the market to develop positive and we follow the trend with our investments, being at the same time very careful for possible changes. This means we put a high focus on securing our profits.