After a temporarily weaker phase, market sentiment has recently improved significantly. After the US Congress passed the Democrats' infrastructure package, which provides for up to USD 550 billion in new investments, prices on the global stock markets reached new record highs in some cases. Unchanged solid corporate profits and the prospects of a year-end rally gave the markets an additional boost. Finally, investors also rewarded the successful communication of the turnaround in monetary policy by the US Federal Reserve. Although the monetary support of the markets will diminish in the long term with the gradual reduction of the bond-buying programme, there is at least clarity on this important issue. Another factor contributing to the positive trend on the stock markets is the fact that the multi-billion investment program is only partially financed. As the past few weeks have shown, there are no majorities in Congress for far-reaching tax increases. In the short term, companies and consumers in the US will thus be spared higher tax expenditures, and the bottom line is that the economy will benefit. But in the longer term, the new creed of deficit spending is likely to damage the US dollar and the US's credit rating.
Despite the current positive trend, investors will face tougher days next year. The stock market highs of recent weeks and months were driven by relatively few stocks. This low market breadth makes the stock markets more susceptible to bad news overall. Headwinds are threatening from several directions. Following the FED's turnaround in monetary policy, the equity markets will be confronted with a throttling of liquidity in the coming months and rising key interest rates later in the year. Disappointments also lurk in earnings growth. Although the global economy is expected to pick up in 2022 after the Covid-19 pandemic is largely over, providing companies with solid revenue growth, the pressure on margins is increasing tremendously due to higher wage demands and rising commodity prices. The overall 2022 scenario thus argues for a distinctly bipolar equity market. On the winning side are a few stocks and sectors that either benefit from an inflationary environment and higher interest rates or exhibit pronounced pricing power. The losers, on the other hand, will be those companies that do not have significant pricing power and are threatened by rising interest rates.
Member of the Management Board
Head of Press & Communications
FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg
T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de
FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg
T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de
FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg
