Systematic strategies have recently pushed equities higher

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

Current market commentary

Investor sentiment has recently risen significantly thanks to new all-time highs in the S&P 500 and an encouraging Q3 reporting season. In the weekly AAII survey, bulls dominate bears by more than 10 percentage points for the second week in a row. At the same time, investors also appear to have unwound put options on the S&P 500, while systematic strategies have increased their equity exposure due to the fall in volatility and positive momentum. Consequently, equity markets have recently become a bit more vulnerable again. However, we still do not expect a major correction this year, as equity markets remains well supported by inflows, share buyback programmes and the lack of alternatives. Next year, on the other hand, is likely to be more challenging for investors. Potential stumbling blocks include tighter central bank monetary policy, China's political and economic development, lower corporate earnings growth, and the U.S. midterm elections.

Short-term outlook

The bulk of the S&P 500 companies will have completed the Q3 reporting season within the next two weeks. As such, US corporate share buybacks should pick up steam. From November 1 to 12, the UN Climate Change Conference will take place. On November 3, the Fed meets for its monthly meeting. The tapering discussion and interest rate outlook due to persistently high inflation readings are likely to be the focus. On November 4, the Bank of England will meet and OPEC+ will announce production quotas for December.

October manufacturing Purchasing Managers' Indices (PMIs) for some eurozone countries and the US (ISM) are due today. The service PMI (Oct.) of China, some eurozone countries and the US as well as the US new orders (Sep.) will follow on Wednesday. Industrial production data (Sep.) for Germany and France and US labour market data (Oct.) will be released on Friday. The ZEW index (Nov.) and US consum-er confidence (Nov. ) will follow next week.