Märkte Insight: Die Märkte haben womöglich ein Märchenszenario eingepreist

Markets Insight: The markets might have a fairy tale scenario in play

In recent times, it seemed as though stocks were supporting equities: U.S. companies' profits increased again significantly in the second quarter, while DAX companies are on track for a record profit. U.S. price pressure softened further in July, leading to significantly lower expectations for a Federal Reserve (Fed) interest rate increase as early as September.

In the U.S., but also in Germany, the leading indices reached record highs in recent days. As a result, some have already been referring to a "Goldilocks scenario" on the market. However, rising yields on long-standing government bonds indicate how fragile the situation is. "Goldilocks and the Three Bears" is actually a fairy tale.

In it, the protagonist, Goldilocks, tries the porridge, chairs, and beds of a friendly bear family's abandoned house. Goldilocks always chooses what she believes to be optimal. According to Henry Allen, a strategist at Deutsche Bank, investors continue to expect robust company growth, according to his analysis. Second, investors anticipate only a few more interest rate hikes by the Fed and the European Central Bank.

Third, commodity markets will continue to introduce only limited supply shocks. Brent oil prices have recently risen again to more than 90 dollars, but are still far below levels following the start of the Iran war. Allen also notes that these scenarios can occur, but considers them unlikely. This "Goldilocks combination" is undoubtedly a very favorable scenario, but offers almost no room for error.

The possibility of overoptimistic interest rate expectations became clear on Tuesday. Rising inflation expectations and concerns about rapidly growing sovereign debts led to increased yields on government bonds from several countries on Tuesday. Thomas Altmann, an analyst at QC Partners, said that with the increased yields, equities become increasingly competitive compared to safe government bonds in terms of capital allocation.

However, this is not the only problem for the stock market. As increased yields on government bonds usually also increase yields for corporate bonds, the financing conditions for companies also deteriorate. Altmann therefore warns of a "multiple danger" for equities. The U.S. tech-heavy Nasdaq index, which is usually particularly sensitive to interest rate changes, lost 1.5 percent on trading day opening.