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Horizon Q4 2021

The powerful recovery continues despite temporary setbacks. The prevailing scepticism about growth in the third quarter seems exaggerated.

 

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From all-time high to all-time high

Many equity regions continued to edge upwards in August thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year – 12 of them in August.

 

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Despite S&P all-time highs, the VIX stubbornly holds above the 15 mark

Many equity regions have continued to edge upwards recently, thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year. Laggards such as US small caps and Japanese equities outperformed, supported by short covering and renewed economic optimism. Bond yields recently moved sideways, despite continued high inflation figures. The market is waiting for new indications from central banks regarding the curbing of bond purchase programmes. These are likely to be given at the central bank meetings scheduled for September.…

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Stronger synchronisation of equities and government bonds is also likely to shape the coming years

For a long period, government bonds with a long duration offered the almost perfect hedge against price losses in risk assets. They generated positive returns and, as safe havens, regularly compensated for part of the losses during stock market corrections. This correlation property between government bonds and equities was crucial to the success of static multi-asset approaches. Today, investors struggle not only with the low yield but often with negative expected returns from government

bonds. Also, the relationship between government bond and equity performance, which was predominantly…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management September

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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European equities historically favourably valued relative to US equities

Things got a bit bumpier in global markets over the last few days. Growth concerns and economic disappointments due to the rapid spread of the delta variant, more hawkish tones from the US central bank (tapering discussion) and regulatory tightening in China weighed on investor sentiment. In addition, the monthly option expiration weighed on investor sentiment last week. However, historically high equity fund inflows, increasing share buybacks, corporate takeovers and a strong Q2 reporting season continue to support and investors seem willing to continue buying setbacks. The S&P 500 has not…

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Under the surface, equities are also pricing in less economic optimism

While there is little to see at the index level and the S&P 500 is even at an all-time high, there is plenty of movement below the surface. Cyclical sectors have tended to be among the underperformers in the last 2-3 months, despite positive earnings revisions, as the rise in COVID-19 cases has dented investor sentiment. Technology stocks, on the other hand, rallied strongly. Bond yields on safe government bonds continued to fall. In addition to future central bank policy, the decisive factor for the further development of stock markets is the extent to which the spread of the Delta variant…

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Earning development supports the markets

The strength in the equity markets continues. July was the sixth month in a row in which the S&P 500 and the STOXX Europe 600 rose. In addition to expansionary monetary and fiscal policies, investors have recently been persuaded by better-than-expected corporate earnings on average.

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The Berenberg Capital Markets Outlook │Wealth and Asset Management August

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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The high point of economic indicators is not high point of shares

The peak of economic growth rates is behind us and growth worries are back. At least, that's how it seems when you look at recent market developments. Despite massively rising consumer prices - especially in the US - defensive and growth stocks have recently been able to perform significantly better than value stocks. Yields on safe government bonds have fallen significantly - temporarily to 1.25% for 10-year US government bonds. The broad equity market, on the other hand, rose. The good news is that even if the peak of some economic indicators is behind us, equities should continue to perform…

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Limited Upside Potential

As the equity markets have already priced in a lot of positive expectations, we think that there will only be limited upside potential until the end of the year. Consequently, we are only slightly overweight equities and have a balanced position within the asset class.

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Our investment philosophy and its implementation within our multi-asset strategies

Berenberg has fundamentally renewed its multi-asset investment philosophy in recent years and now offers modern, promising multi-asset approaches with its multi-asset funds and asset management strategies that explicitly take into account the changed market environment.

 

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Positive momentum & falling VIX - systematics increase equity exposure

The constant back and forth of investment styles continues. Recently, growth companies were once again ahead. Shares from healthcare and technology sectors in particular were able to make stronger gains. Value stocks, on the other hand, were weighed down by Covid-19 fears around the Delta variant as well as falling bond yields. Style volatility is likely to persist for some time, helped by mixed economic and inflation data. In addition, positioning is no longer as pronounced in one direction or the other. The equity market as a whole is currently supported by ongoing inflows as well as a…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management July

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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The bar for the coming reporting season is set high

Many asset classes are currently taking on a life of their own. Bond yields have risen markedly in the wake of the somewhat hawkish Fed, only to fall sharply the next day. The U.S. dollar has appreciated, while gold retreated more than 6% from its peak. Stock indices barely moved - although there were strong moves under the surface. Tech stocks shot up and cyclicals slipped. Market participants seem to have reduced their reflation expectations somewhat. However, the option expiration date last Friday may have been at least partly responsible for the sometimes erratic movements. With the…

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Horizon Q3 2021

Economic and profit growth remain high – even though positive surprises and annual growth rates are slowing

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Bumpy Summer

The summer is however likely to be bumpy - especially in terms of investment styles. In contrast, high central bank liquidity, fiscal stimulus, high demand potential thanks to high savings rates, share buybacks, significant share inflows and the reopening momentum speak in favour of equities. Without an external trigger, we do not expect a stronger correction.

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Good sign - investors seem to be hedging via options

While economic data in the US has not been able to surprise positively on average, unlike in other regions, the positive earnings revisions continued globally - particularly in commodity-heavy regions such as Latin America and Eastern Europe. For Latin America, earnings growth of more than 200% is now even expected for this year. Accordingly, emerging market equities outside Asia have also outperformed recently. In our view, the market is likely to remain in a “wait-and-see” mode over the next few months until it becomes clear how the Fed will act and what Joe Biden can actually implement of…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management July

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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High style volatility: constant ups and downs between value and growth

Markets remain nervous and equity style volatility stays high. There are no clear trends. This is also because the Fed and the markets are unlikely to know better, until late summer, how temporary the recent sharp rise in inflation will really be. Gold and European equities were among the recent outperformers. They benefited from significant inflows. Gold also surpassed its 200-day moving average and was supported by falling real interest rates, a weak US dollar and high volatility in cryptocurrencies. European equities benefited from positive earnings revisions as well as improved investor…

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Investors have used even small setbacks as buying opportunities

While little has happened with shares at an index level, there has been a lot of movement below the surface. While growth stocks recovered strongly in April, highly valued IT stocks have recently fallen sharply. Strong economic data, inflation concerns and now increasing discussions about central bank tapering have revived the reflation trade. Energy companies and basic materials were among the relative winners. Equity regions that benefited were Latin America, Eastern Europe and the UK. But defensive sectors such as telecoms and consumer staples also gained. In our view, style volatility is…

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Light and shadow

April lived up to its reputation as a seasonally strong month for equity markets. The good performance was supported by the progress in Covid-19 vaccinations, the expansive fiscal policy, good economic data and positively surprising corporate profits. However, the summer brings both light and shade. We have therefore recently reduced our equity exposure to a slight overweight and continue to focus on more cyclical segments, such as commodities, alongside quality companies with sustainable growth.

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Passive investments change market structure and market behaviour

The importance of passive investments continues to grow. They enable investors to invest quickly, cost-effectively, and supposedly without disadvantage in different asset classes, regions, or segments, even if underlying securities are not very liquid.

However, their growing importance is leaving its mark on the behaviour of the overall market and individual securities. Passive investments are one of the drivers of the continuously changing market structure. With a focus on equities, we highlight the key implications of passive investing that investors need to be aware of. However, many…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management May

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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Stock market does not usually run away in May and June

In line with typical April seasonality, risk assets gained over the last few weeks while the US dollar depreciated. Continued encouraging economic data and a positive start to the Q1 reporting season helped. However, there are now increasing warning signs that suggest limited upside potential for equities in the coming weeks: tax debates, optimistic investor sentiment, insider selling, ambitious valuations, deteriorating seasonality and a muted equity reaction to positive surprises. We expect more volatile markets into the summer and are reducing our equity exposure accordingly from a moderate…

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