US equities in narrow trading range

The bi-weekly Monitor gives you a structured overview of the current capital market environment and highlights important developments.

Current market commentary

The major stock indices have been in a sideways market for months. The upward potential seems to be limited at the moment, not least because of the rise in real interest rates. While the two major asset classes, equities and bonds, have recently been treading water, commodities have been able to recover significantly. The oil price, for example, has risen by about 30% from its low in June. The rise harbours new inflation risks and does not make the central banks' job any easier. Last week, for example, the Fed stressed that it expects higher interest rates for a longer period. A further increase in valuations thus hardly seems possible, especially for US equities. In the short term, the probability of a setback is increased. Stocks often underperform into October - not least because analysts then often revise overly optimistic earnings estimates with a view to the Q3 reporting season. In addition, the support of the stock return programmes is less during the now upcoming reporting season.

Short-term outlook

After the last two weeks were dominated by global interest rate policy, the next two weeks will see more calm on the central bank front. Politically, things are likely to get interesting next week during the Chinese bank holidays week (Golden Week). In times of energy shortages, OPEC+ will also decide on 4 October on further production levels. On the economic front, US new home sales (Aug.) and US Conference Board consumer confidence (Sep.) will be the focus of markets on Tuesday. Wednesday's durable goods orders (Aug.) and Thursday's GDP figures (Q2) for the US will provide insights into the robustness of the US economy. Thursday will also see the release of economic confidence for the Eurozone (Sep.) and consumer prices (Sep.) for Germany. The release of PMI data for China (Sep.) will follow on Friday. The following Friday, the US labour market data for September, eagerly awaited by the market, will also be published.

Narrow trading range in US equities driven by special issues

Source: Bloomberg, own calculations Time period: 31/12/2021 – 22/09/2023
  • The S&P 500 has been trading in a narrow range for months due to a lack of market breadth. Driven by specific topics such as the AI hype or the recently resurgent oil price, the stocks within the index have developed very heterogeneously. This is also reflected in their low correlation.
  • Should investor focus shift to a possible economic slowdown, the correlation is likely to rise again; however, bonds in multi-asset portfolios will then likely diversify better again.