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Markets Update October 2023 - Stock markets in waiting: US bond market sets the pace

Bad Homburg, 10/23/2023
  • "Higher for Longer" shows effect
  • Anti-cyclical investors support the stock market
  • Middle East conflict a major factor of uncertainty

In recent weeks, noticeable interest rate pressure has weighed on sentiment on global stock markets. In the meantime, the landmark yields on ten-year US Treasuries have reached their highest level since the financial crisis. As long as the US economy does not cool down - and the astonishingly robust macro data currently speak against this - it should be almost impossible for the US Federal Reserve to lower key interest rates. The associated fear of a "higher for longer" policy by the major central banks is contributing significantly to interest rate pressure, not only in the US but worldwide. This is exacerbated by the high supply of new US government bonds. The so-called bond auctions have recently become increasingly bumpy. In order for the markets to accept the securities, the USA must offer higher interest rates. The pro-cyclical debt-financed spending programmes of the US government are therefore likely to move the markets just as much as the interest rate policy of the US Federal Reserve.

Investors speculate on favourable seasonality

Despite the turmoil on the bond market, the stock markets are tending to be mostly stable. The background to this is, on the one hand, that the overarching consolidation phase has already progressed. On the other hand, the fear of more significant price declines currently prevails among many investors. This in turn attracts anti-cyclical buyers into the market, who ensure that prices stabilise. In addition, the markets are speculating on the favourable seasonality that usually appears from October onwards - especially in good stock market years - and is seen as a harbinger of a possible year-end rally. Since seasonal trends have always proven to be relatively reliable in the past, market participants speculate on the continuation of this phenomenon.

Worries about an escalation of violence in the Middle East

To the surprise of many experts, the shocking events in Israel have hardly affected the financial markets so far. However, the Middle East conflict poses not inconsiderable risks for the capital markets. The USA is on Israel's side, while the presumed indirect party to the conflict, Iran, is supported by Russia and China. In the wider perimeter of the region are either important oil-producing countries or countries that have access to the oil transport routes. Therefore, in the event of an escalation and expansion of the conflict in the Middle East, the risk of a lasting disruption of global oil supply is high. Against this background, professional investors should consider a temporary geopolitical hedge of their portfolio with energy stocks or crude oil investments.

About FERI

The FERI Group, headquartered in Bad Homburg, Germany, was founded in 1987 and has developed into one of the leading multi-asset investment houses in the German-speaking region. FERI offers tailor-made solutions for institutional investors, family assets and foundations in the business areas:

Founded in 2016, the FERI Cognitive Finance Institute acts as a strategic research center and creative think tank within the FERI Group, with a clear focus on innovative analyses and method development for long-term aspects of economic and capital market research.

Together with MLP, FERI currently manages assets of approximately €56 billion, including around €18 billion in alternative investments. In addition to its headquarters in Bad Homburg, the FERI Group has offices in Düsseldorf, Hamburg, Munich, Luxembourg, Vienna and Zurich.


About Dr. Eduard Baitinger

Dr. Eduard Baitinger has been Head of Asset Allocation at FERI AG since 2015. Under the overall responsibility of the CIO of the FERI Group, Dr. Marcel V. Lähn, Dr. Baitinger is responsible for quantitative asset allocation in the CIO Office and various publications on the assessment of the international financial markets.

Before joining FERI, Dr. Baitinger was a research assistant at the University of Bremen and a financial analyst at an asset manager. In 2010, he completed his studies at the University of Bremen with a degree in economics, accompanied by a stay abroad in New York. In 2014, Eduard Baitinger completed his doctorate with distinction on new approaches to quantitative asset management. Dr. Baitinger publishes regularly in academic journals and acts as an academic reviewer.

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Marcel Renné

Chairman of the Board

Rathausplatz 8-10

D-61348 Bad Homburg

Dr. Eduard Baitinger