Month July will be the most delicate for the markets, who will probably find themselves discounting a revision of the analysts' estimates following the publication of the quarterly reports, at the same time as the reduction in liquidity in circulation by the central banks will also have to be faced. Instead a golden period could be the end of June when large flows are expected from investment funds and sovereign wealth funds that will have to adjust their portfolios. Says Antonio Cesariano, global strategist chef of Intermonte Sim.
At the moment we are faced with a suspended situation, in which many pieces of the economic framework have to find an order: "On the one hand, market sentiment is starting to timidly discount it, on the other, the rationality of analysts' forecasts still remains firm on high levels” says the strategist.
Analyst estimates still show high levels of corporate profits
If we look at the performance of the price/earnings (P/E) charts, the best litmus test to understand if a market is expensive or not, we see that they are declining, so it should be a good time to buy. But if instead we go deeper and analyze which of the two items affects the data the most, we can see that the analysts' estimates regarding earnings per share are still high. The S&P 500 is at 225 dollars, the euro stoxx 600 is 33 euros. That is, analysts continue to see a high level of profits.
In the next quarterly it will be seen how companies and consumers will deal with the rise in prices
The market instead begins to sense that something is going wrong: companies have to cope with the increase in inflation and are only partially able to pass on the increase in prices to the final consumer. And the latter will be able to bear the increase in costs up to a certain point, then he will stop buying and wait or the fall in inflation or the rise in wages. At that point companies will be forced to reduce margins.
At the moment this situation is not yet clear. The companies have shown some very good quarterly and often even recovering from the pandemic period. But now it will be necessary to see on the one hand how much and for how long there will be inflation, on the other hand whether there will be and how long there will be a slowdown or a recession, with the greater fear now shifted from inflation to stagflation.
July will be the most difficult month of the year for the stock exchanges
"June will be a month full of liquidity due to portfolio adjustments of many funds” says Cesarano. “July will be the most delicate month of the summer, in which we will realize that there will be less liquidity, and this, exactly as it happens in nature, will lead the stock exchanges to wither".
This is why the next appointments on the agenda, which will set the pace for the market, will be important.
Starting next Thursday 9 June in which the ECB will announce its rate decision which could lead to a squeeze. After all, the Fed is expected to raise rates twice by 50bps in June. In addition, the data on US inflation will be important this week.
