Weekly outlook: “Have Trump trades been factored in yet? : A German Analyst's Perspective

Everything is open again for the US presidential election. Until now, the stock market has been betting on Mr. Trump's re-election and the rise in small and medium-sized enterprises and oil stocks, but there is a possibility that it will move in the opposite direction again in the future.

2024/7/22 Frankfurt (Stock Exchange)

Joe Biden's resignation as a US presidential candidate has become the number one topic of conversation in the stock market. Do Democrats really have a chance with new candidate Kamala Harris? Or will the Democrats be able to find another promising candidate? Trump trades are already unfolding in recent markets: betting on Donald Trump's second term. US small businesses and oil and gas producers benefited, while tech stocks suffered. Deutsche Bank commented on Monday morning that there seems to be a good possibility that the so-called “Trump Trade” will collapse somewhat in price.

According to Robert Halber of Bader Bank, Trump's victory will benefit US Tier 2 stocks. At the end of the day, companies listed on Russell 2000 have raised an average of about 80% of sales in North America. “As a result, according to analysts' forecasts, the earnings growth rate of second-tier stocks should be more than double that of blue-chip stocks on average every year until 2026. Big tech companies no longer have an alternative.

On Monday morning, the DAX was 18,262 points. Friday's closing price was just under 18,172 points, down 3% for the week. Heraba analyst Ulrich Votberg explains that “there are several reasons why risk aversion movements have intensified.” Political unease in the US and the possibility of worsening trade relations with the Eurozone, drastic adjustments in US technology stocks, and expectations for interest rate cuts on both sides of the Atlantic were not boosted any further. “Additionally, the global IT failure that occurred on Friday also brought about a sense of uncertainty.

After the Dow average hit an all-time high in the middle of the week, losses also occurred on Wall Street on Friday. The Nasdaq 100 has already weakened for a week and a half, and is 19,592 points, down quite a bit from the record high of 20,748 points.

On the charts, things don't seem to be good: DAX has just reached the trend line, but the recent low in mid-June is far more important, according to Christophe Geyer. The chart technician explains, “If we don't try to fall below this, we will be in a critical situation in terms of the Dow theory.” The indicator's latest sell signal has yet to be fully processed. The slight increase in trading volume also indicates that selling pressure is increasing. “Uncertainty is growing, so more sellers should appear.” Geyer sees that the new week will be the deciding factor for future trends. “This statistic isn't going to give very good results over the next few weeks.

According to DekaBank, the next two weeks in Europe and the US will be the most important in the second quarter reporting season. The Stoxx 600 reports 35% of the total market value this week, 25% next week, and 22% and 40% for the S&P 500. “The first numbers were convincing. The bank predicts that the quarterly reporting season will continue to be strong on both sides of the Atlantic.

7/24 (Wed)

10:00 a.m. Eurozone: July Purchasing Managers Index. DekaBank anticipates a continued split in the economy. The services sector is probably on a clear growth trajectory, but sub-indices of the industrial sector continue to suggest a recession.

7/25 (Thursday)

10:00 a.m. Germany: July IFO Business Index. According to Deutsche Bank, after falling to 88.6 points from 89.3 points in June, a slight rebound to 89 points is expected in the July survey.

2:30 p.m. US: Q2 GDP. Commerzbank says that despite recent weak economic data, the American economy continued to grow in the second quarter. The year-on-year growth rate compared to the previous fiscal year was 2.2% (consensus 1.7%), which is slightly higher than the first quarter. Private consumption seems to have contributed greatly to this.

July 26 (Friday)

2:30 p.m. America: June Consumer Price Index (excluding food and energy). According to Decabank, the major price indices announced by the US Federal Reserve (Fed) are expected to show a slightly stronger rise in prices than the previous month's consumer prices. However, if this is extrapolated throughout the year, the rate of increase will fall within 2%, which is the target range of the Fed.