Markets Update September 2023 - The belief in a "soft landing" could prove to be a mistake

The stock markets are not making any headway at the moment. The continuing high level of interest rates and unfavorable seasonality are not allowing any major movements. Fears that inflation in the USA could accelerate again have led to nervousness on the interest rate markets. In the euro zone, too, there is no easing on the interest rate front. In view of stubbornly high core inflation rates, the ECB has raised the key interest rate to a 20-year high - despite weak economic data. After ten key rate hikes in a row, the ECB has now indicated a temporary end to the tightening cycle. However, this does not mean that interest rates will fall again soon. In view of the unchanged high interest rate pressure, technology stocks were unable to continue their dynamic outperformance and have been stagnating for weeks. Cyclical and defensive stocks, however, are equally unconvincing in the current market environment. Investors now assume that the very robust U.S. macro data are only a snapshot and that this trend cannot continue in view of the prevailing recession signals. At the same time, economic activity outside the U.S. is mostly very weak. This is another factor in the general lack of momentum in the equity markets.  

"Soft landing" is unlikely

A key reason for the robust performance of global stock markets over the year is the hope of a so-called "soft landing" in the USA. However, from an empirical perspective, this scenario is unlikely. History knows of no example in which it has been possible to bring the economy down in such a controlled manner after a period of high inflation that inflation could be contained without triggering a severe recession at the same time. Nevertheless, the belief in a "soft landing" could initially continue to drive the markets. Later on, however, a "classic" central bank-induced recession is much more likely. The current U.S. macro data are still positive and the recession scenario is seemingly far away. However, the interest rate tightening has not yet fully reached the real economy, and the negative effects are not likely to materialize until 2024. If the interest rate tightening to date proves to be insufficient - which can only be determined with a significant delay - there is even the threat of a second wave of inflation. Real assets, especially commodities, would then be at an advantage. In this complex mix, a multi-asset investment approach that is able to react flexibly to sudden scenario changes is generally recommended.