Beware of government bonds: losses ahead in 2021 and 2022

Our biweekly publication ‘Monitor' provides you with a structured overview of current capital market developments.

Current market commentary

It didn't take long for investors to once again succumb to "FOMO" – the fear of missing out. Last week Thursday, the S&P 500 had its best day since March, with 479 of 500 stocks up. Issues such as high energy costs and tapering concerns are not yet off the table, but investment pressure prevails. Beyond that there are also good reasons to remain (cautiously) optimistic. The Q3 reporting season continues the picture of the last few quarters: so far 83% of the companies in the S&P 500 have beaten earnings expectations - despite supply bottlenecks, rising input costs and skilled labour shortages. However, for equity markets to continue to rise, decent earnings growth is crucial because valuations are more likely to fall than rise in the coming months. Meanwhile, government bonds are likely to post losses this year for the first time since 2013. If inflation remains high and monetary policy becomes more restrictive, they are likely to have a difficult time in the coming year as well.

Short-term outlook

The Q3 reporting season is in full swing. In the next two weeks, more than 30% of the companies in the STOXX Europe 600 and more than 60% of the S&P 500 report, measured by market capitalisation. On the political stage, the EU summit (21/22 Oct), the G20 summit (30/31 Oct) and the Japanese elections (31 Oct) take place. The ECB also holds its monthly meeting on 28 Oct.

Today, industrial production data (Sep) for the US and China will be released. On Wednesday, consumer prices (Sep) for the UK will follow. French business confidence (Oct) and the US Philadelphia Fed Index (Oct) will be published on Thursday. On Friday, the preliminary Purchasing Managers' Indices (Oct) for the Eurozone, the UK and the US will be published. The following week will see US and Eurozone economic growth (Q3), US consumer confidence and the German IFO index.