Although the current reporting season shows that companies are experiencing a significant headwind as a result of the ongoing political disputes, this is not the case with the rest of the world. Capital expenditure in particular is suffering from continued uncertainty. Actually, this is not the ideal environment for the stock markets. But the markets live from expectations, which have become less negative in recent weeks. Brexit, for example, is not being resolved, but is being postponed again by three months. And the USA and China have approached each other in the trade dispute. Hopes were nourished that a partial agreement would be signed at the Asia-Pacific summit in Chile in November. The summit has now been cancelled because of the unrest in Chile, but the US still does not expect any delays. The expansionary orientation of the central banks is also having an effect, at least on asset prices.
Stock markets are therefore relatively unaffected by the weak economic data, sentiment is positive and prices are on a record hunt. Since the beginning of the year, the major indices around the globe have posted double-digit gains and, in the wake of less negative news, have recently reached some new all-time highs. The Swiss SMI and the American S&P 500 are higher than ever before. At the same time, the volatility indices show that nervousness is low.
So there is hope that economic expectations will not become more negative. At the same time, the central banks are once again shooting off all tubes, which supports the markets. But not any more either. The equity markets were able to make significant gains, and valuations are no longer favourable. This means that prices have already anticipated some of the turnaround for the better. All this supports our forecast, which initially assumes a volatile sideways market.