Markets ended summer on a positive note | Luminor

Markets ended summer on a positive note

  • FED hinted about slower-than-expected path to rate hikes
  • Divergence between developed markets and emerging markets persists

August was one more positive month this year. US S&P 500 and European STOXX 600 indexes rose for seven straight months in a row. Naturally investment community starts to expect at least some sort of correction. 

According to Ned Davis Research (NDR), more than 210 days have passed without 5% correction in S&P 500 index. During every bull market since 1928, on average there were 84 days without such correction. Ratio measuring 10% corrections currently shows more than a year without one, while historical average is 331 days in bull markets. Historically autumn months are associated with some sort of pullbacks as investors get back form vacations and start to reevaluate their investments. So, it seems, that at least small correction in coming months should be expected.

Investors are closely watching every word of central banks. Any hint of monetary policy normalization could trigger bigger reaction in the markets. Just before the end of August FED chairman Jerome Powell indicated that the central bank is likely to begin tapering before the end of the year, but rate hikes are not imminent as there is still “much ground to cover” before the economy hits full employment. According to him, US economy has reached a point where it no longer needs as much policy support. It is likely that they will begin cutting the amount of bonds central bank buys each month before the end of the year. Overall investors reacted positively to such statement as rate hikes probably will not materialize this year.

World, US small caps and Emerging markets equity indexes

Source: Bloomberg Finance L.P

Nonetheless we still observe divergences in the markets. As large companies push market capitalization weighted indexes to new highs, other midsize and smaller companies are not doing that great. Also, emerging markets, especially Chinese companies are not joining the trend of going up each month but show different tendency of going down as crackdown on companies and sectors hurt confidence of investors, who were deploying their capital in the region and expected larger gains, but were met with increased regulation. Just recently China forbidden players under the age of 18 from playing video games for more than three hours a week by saying, that it needed to pull the plug on a growing addiction to what it once described as "spiritual opium". Such news affected not only Chinese video game makers, but also other companies in the industry, because China is the biggest video game market in the world. 

AAII Investor sentiment

According to American Association of Individual Investors (AAII) published survey data. Indexes reflect sentiment of individual investors towards the stock market over next 6 months.
Source: Bloomberg Finance L.P

Current situation in the markets still provides enough evidence to be slightly optimistic, as most major economies are still being stimulated, macroeconomical ratios are inching higher and investors still are willing to take on risk. The spread of COVID-19 Delta variant poses risks, especially when we enter fall respiratory virus season, but the newest research on vaccine booster shows promise to prolong count of antibodies for those who already received COVID vaccines.

Warnings:

  • This Marketing Communication is not considered investment research and has not been prepared in accordance with standards applicable to independent investment research.
  • This Marketing Communication does not limit or prohibit the bank or any of its employees from dealing prior to its dissemination.

Origin of the Marketing Communication

This Marketing Communication originates from Portfolio Management unit (hereinafter referred to as PMU) – a division of Luminor Bank AS (reg. No 11315936, with registered address at Liivalaia 45, 10145, Tallinn, Republic of Estonia, hereinafter - Luminor). PMU is involved in the provision of discretionary portfolio management services to Luminor clients.

Supervisory authority

As a credit institution Luminor is subject to supervision by the Estonian financial supervision and resolution authority (Finantsinspektsioon). Additionally, Luminor is subject to supervision by the European Central Bank (ECB), which undertakes such supervision within the Single Supervisory Mechanism (SSM), which consists of the ECB and the national responsible authorities (Council Regulation (EU) No 1024/2013 - SSM Regulation). Unless set out herein explicitly otherwise, references to legal norms refer to norms enacted by the Republic of Estonia.
Content and source of the publication

This Marketing Communication has been prepared by PMU for information purposes. Luminor will not consider recipients of this Communication as its clients and accepts no liability for use by them of the contents, which may not be suitable for their personal use.

Opinions of PMU may deviate from recommendations or opinions presented by the Luminor Markets unit. The reason may typically be the result of differing investment horizons, using specific methodologies, taking into consideration personal circumstances, applying a specific risk assessment, portfolio considerations or other factors. Opinions, price targets and calculations are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation, interest rate forecasts, currency forecasts and investment horizon.

Luminor uses public sources that it believes to be reliable. However, Luminor has not performed independent verification. Luminor makes no guarantee, representation or warranty as to their accuracy or completeness. All investments entail a risk and may result in both profits and losses.

This Marketing Communication constitutes neither a solicitation of an offer nor a prospectus in the sense of applicable laws. An investment decision in respect of a financial instrument, a financial product or an investment (all hereinafter “product”) must be made on the basis of an approved, published prospectus or the complete documentation for such a product in question and not on the basis of this document. Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a substitute for the necessary advice on the purchase or sale of a financial instrument or a financial product.

No Advice

This Marketing Communication has been prepared by Luminor PMU as general information and shall not be construed as the sole basis for an investment decision. It is not intended as a personal recommendation of particular financial instruments or strategies. Luminor accepts no liability for the use of the Marketing Communication content by its recipients.

If this Marketing Communication contains recommendations, those recommendations shall not be considered as an objective or independent explanation of the matters discussed herein. This document does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the persons who receive it. The securities or other financial instruments discussed herein may not be suitable for all investors. The investor bears all risk of loss in connection with an investment. Luminor recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors if they believe it necessary.

The information contained in this document also does not constitute advice on the tax consequences of making any particular investment decision. The estimates of costs and charges related to specific investment products are not provided therein. Each investor shall make his/her own appraisal of the tax and other financial advantages and disadvantages of his/her investment.
 
Risk information

The risk of investing in certain financial instruments, including those mentioned in this document, is generally high, as their market value is exposed to many different factors. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. When investing in individual financial instruments the investor may lose all or part of their investments.

Important disclosures of risks regarding investment products and investment services are available here.

Conflicts of interest

To avoid occurrence of potential conflicts of interest as well as to manage personal account dealing and / or insider trading, the employees of Luminor are subject to the internal rules on sound ethical conduct, management of inside information,  and handling of unpublished research material and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. Luminor’s Remuneration Policy establishes no link between revenues from capital markets activity and remuneration of individual employees.

The availability of this Marketing Communication is not associated with the amount of executed transactions or volume thereof.

This material has been prepared following the Luminor Conflict of Interest Policy, which may be viewed here. 
 
Distribution

This Marketing Communication may not be transmitted to, or distributed within, the United States of America or Canada or their respective territories or possessions, nor may it be distributed to any U.S. person or any person resident in Canada. The document may not be duplicated, reproduced and(or) distributed without Luminor’s prior written consent.