Excitement of the week: Stocks fall no matter what central banks do

.... and this still means optimism for the stock
market!


How come? After ten interest rate hikes, the US Federal Reserve –
as expected – is not raising interest rates any further, and yet
the leading American index, the Dow Jones, is actually falling
slightly. The European Central Bank (ECB), on the other hand, is
increasing – as expected – the key interest rate to four percent
and European stocks are collapsing all the more. Why? Because the
stock market anticipates the development of the real economy. And
the capital markets expect that the US Federal Reserve will raise
the current interest rates in two steps by the end of the year
from five to 5.25 percent to 5.5 to 5.75 percent.


In my opinion, that is also very plausible, because they want to
get a better grip on inflation. Because even if inflation is
rising more slowly in the US than in the previous months, it is
still 5.3 percent. Furthermore, coming back from the south of the
USA, I can report that even the smallest shop there has a sign
saying “We are hiring” stuck to many shop windows. And against
wage-induced inflation, interest rate increases help to slow down
the economy, the job offer and thus wages.


The ECB also intends to raise interest rates even further in July
in order to get the high price increases under control, whatever
the cost of growth. After all, the ECB is only responsible for
price stability and not, like the FED, for unemployment.


CONCLUSION: As advised in the Börsenminute, Podcast-Episode of
May 16: It is still not a good time to invest in long-dated US or
European government bonds as long as interest rates are still
rising and the prices of older, even lower-yielding bonds are
falling. Apart from the increasing currency risk of US interest
securities due to a rising euro, once the gap between US and
European government bonds starts to narrow.


If, on top of that, the rate of inflation remains high and not
even government bonds with five percent interest can beat
inflation, long-term government bonds are certainly not the best
investment. You're better off with stocks that are less sensitive
to interest rates. Their companies are neither highly indebted
nor have to make large investments.


However, the ECB's reaction also gives reason for OPTIMISM:
Because if the EU Commission is only expecting growth of 0.9
percent for the EU in 2023 and the German economy is even
shrinking, then it is probably expecting a strong recovery for
2024 . Otherwise it would hardly dare to slow down the poor
economic situation even further by raising interest rates ...


I am Julia Kistner, podcasthost of "Die Börsenminute" - the stock
market viewed from Europe. Please support my podcast Börsenminute
by telling your friends of it and suscribe to this podcast. Thank
you so much!


Legal notice: This is the opinion of the author and not an
investment recommendation. What you make of it is your business,
Julia Kistner assumes no liability for this.


#Fed #ECB #interestrates #stocks #podcast