After the strong increases in the first part of the year, in August the stock markets experienced the now famous correction that everyone had predicted. Compared to expectations, however, it was a superficial process and not the reversal of trend that many analysts had previously spoken of. What to do and what will happen by the end of the year? For Alessandro Fugnoli, Kairos Strategist also in the coming months the stock exchanges will continue to be affected by the competition of the monetary market and, if the Federal Reserve keeps rates high for a few more quarters, the money market will continue to exert fearsome competition against stocks with rather high valuations.
“The grants will continue to come positive news on the two fronts of inflation and growth. As for the recession, for now there is no trace of it either in the present or in the foreseeable future", states the expert in his podcast "On the 4th floor".
The stock market and the correction of technology stocks
La August correction also covered technology stocks, whose rise in the previous months had driven the Nasdaq by 40% above the level of the beginning of the year thanks to the leap in quality of'artificial intelligence which in turn opens up great new growth opportunities in dedicated software, data centers and the powerful semiconductors that make it all possible.
“However – underlines Fugnoli in his podcast – although it is undeniable that the last few months have seen an important leap forward in artificial intelligence, the concrete benefits for companies in the sector and for the economy as a whole will take years to unfold and it is not prudent to discount them all immediately”. This is the thought of many managers of companies in the sector who in fact between June and July “had exercised record amounts of stock options personal to be able to sell their shares on the market,” the strategist points out.
The Federal Reserve, rates and money market competition
Until the end of the year, according to Fugnoli, there is also another "excess of optimism" that the markets will have to correct, that relating to the four rate cuts that the markets are pricing in for 2024 and "which in our opinion will be less", claims the strategist, explaining that, if the Fed keeps rates high for a few more quarters "the money market, with its high and safe yields, will continue to exercise a formidable competition compared to a stock with rather high valuations".
Stock market: what will happen by the end of the year? It's time for defensive stocks
Stock markets will continue to receive positive news on inflation and growth. “This will not be a perfectly linear movement, as demonstrated by the recent recovery in oil prices, but overall inflation will continue to move closer to target by 2%". However, there won't even be a shadow of a recession.
By virtue of what has just been said "Disinflation and growth will therefore continue to support the stock markets and corrections like the one in August will continue to be superficial, without turning into trend reversals".
In summary, until the end of the year, European and US stock markets will continue to grow, but more slowly than that seen in the first part of the year.
“As regards the sectors – advises Fugnoli – in the next phase the defensive stocks, hitherto neglected by the markets. These securities currently offer a better risk-return ratio than cyclicals and growth."
From a geographical point of view, it will be Zurich, as the defensive bag par excellence, the price list to take into consideration the most, followed by London and Tokyo, “also in consideration of the recovery that the pound and yen could show in the coming months”, concludes the expert.
