Equity markets under pressure

So far the sell-off at the stock markets ran in orderly fashion. Panic, which is often observed during periods of stress, did not occur yet, as swings did not spread to other asset classes or currencies. Following the regional performance differentials in the previous months, already severely punished regions as Europe and Emerging Markets did not underperform the US. Basically, this is favourable. Nevertheless the current sentiment indicators point towards overall positive investor mood. This is primarily true for the US. Since we use the investor sentiment as a counter indication, the threat of increasing selling pressure in the short term intensifies if the mood changes.

In our view the current weakness is part of the correction started in February. Referring to technical analysis the downtrend is not over yet. The mid-term outlook remains brighter: We see the weakness as a correction in a well advanced bull market, which has not yet finished. The latest economic data is showing a declining momentum, but we do not have an indication of an upcoming economic downturn. Therefore the earnings growth should remain solid, even though the high expectations of analysts are likely to be revised downwards. Although most of the companies were able to meet current expectations, many of them state a cautious outlook due to the trade dispute and the associated uncertainty. This in turn leads to significant swings of individual stocks.

Bottom line
We reiterate our cautious view: The recent correction is not over yet and many of our indicators are not giving clear buy signals. Within our tactical allocation we stick to our underweight in equities. Additionally we confirm the overweight in hard currency Emerging Market bonds, the short bond duration as well as the allocation in gold. On a single stock level we regard excessive price setbacks as selective buying opportunity.