Markets Update February 2024 - Stock market high on a narrow foundation

The global stock markets are continuing their positive trend unperturbed, reaching new all-time highs in many cases. Neither the unfavorable inflation data nor the realization that the US Federal Reserve will not cut interest rates as quickly as originally expected can dampen investors' euphoria. It seems that the markets are currently being driven by robust earnings growth. There is no sign of the feared earnings recession, at least at index level. However, this perspective is deceptive. If you take a closer look, you can see that earnings growth is mainly concentrated in the large technology and pharmaceutical stocks. The current stock market boom therefore lacks the market breadth that would be necessary for a stable and sustainable upturn. It is striking, for example, that companies with a strong connection to AI repeatedly manage to exceed the high profit expectations and thus justify the high valuation levels. Added to this is market psychology: nobody wants to miss out on the stock market boom. This is why even the smallest setbacks are currently being used to enter the market. In this environment, professional investors should actively weight the relevant sectors and at the same time take agile risk management to heart.

China: Has the bottom been reached?

Just how risky the "buy the dip" mentality is can be seen in the example of the Chinese stock market. In recent years, the stock markets there have fallen with astonishing consistency. For many investors, buying more ended in a losing trade. There are many reasons for the weakness of the Chinese stock market: the government's authoritarian course, the high level of private debt, the economic slump and the crisis on the real estate market. Beijing recently adopted a package of measures to end the slump. Monetary policy was once again eased and an equity stabilization fund worth billions was promised. At the same time, unpopular decisions were announced, such as the restriction of share sales. Stock market prices have reacted cautiously positively to this, but it remains to be seen whether it will be enough for a sustainable comeback of Chinese shares. After all, China's problems are largely structural. In order to stimulate the economy, there will probably be no way around unconventional measures in the medium term.