Consumer sentiment sank to an all-time low in the US. the astonishingly robust business climate and purchasing managers' indices have also fallen.
Inflation hasn't peaked yet. In Canada and Great Britain, inflation rates were rising again in June. Since the base effects over the summer months are only very weak, contrary to our previous assumptions we fear that inflation rates in the USA and Europe will only noticeably return in October. It will therefore take longer for the central banks to deviate from their very aggressive path of interest rate hikes.
We consider the current earnings expectations (12% earnings growth for the MSCI World this year) to be clearly too optimistic and therefore expect considerable earnings revisions, which makes valuations seem elevated and the stock markets less attractive. As a result, we need to maintain our defensive positioning for longer than expected.
In the short term, however, the markets are heavily oversold; sentiment is extremely pessimistic. Furthermore, since July is seasonally one of the best months on the stock markets, we consider a renewed bear market rally to be probable. We are therefore maintaining our neutral equity allocation for the time being and waiting for a more suitable time for a possible equity reduction.
Unlike equities, the bond market and the commodities market are not yet pricing in a recession. However, this will happen sooner or later. For this reason, we are once again reducing our duration underweight and are now neutrally positioned in government bonds. We are now underweight in commodities. We are increasing Swiss real estate to neutral following the successful underweighting.