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LGT Navigator: Bear market rally

June 22, 2022

After the extended weekend due to the holiday, stock indices on Wall Street started the week with optimism. As a result, stock markets around the world recovered from last week's sell-off, in which global equities slumped to their lowest levels since November 2020. However, fears that monetary tightening to fight inflation could lead the global economy into recession remain palpable and are likely to continue to cause nervousness among investors. Against this backdrop the next few days will show, if the short-term rally in the equity markets was a “bear market rally".

Bear market rally

The Dow Jones Industrial closed Tuesday +2.15% higher than last Friday at 30,530.25 points. This allowed the Dow to stabilize above the 30,000 mark again for the time being, after the prospect of rapidly rising interest rates had pushed the indices on the New York Stock Exchange to the lowest levels since the end of 2020. The S&P 500 also rose sharply by +2.45% to 3,764.79 points and on the technology exchange Nasdaq, the indices also traded around +2.5% higher. However, investors' fears that the global economy could plunge into recession against a backdrop of high inflation, monetary policy reversals by central banks and ongoing geopolitical uncertainties remain at the core. New York-based investment bank Goldman Sachs now believes there is a 30% chance that the US economy will slide into recession next year. In the bond market, the yield on ten-year US government bonds is trading at 3.28%, slightly below the eleven-year high of 3.49% reached last week. In Asia, most stock indices are already trending lower again today. Interest rate and inflation concerns remain the focus here. Meanwhile, the Japanese yen fell against the US dollar to a 24-year low.

Rising mortgage rates depress demand on the US real estate market

In the United States, sales of existing homes continued to fall in May. Compared with the previous month, -3.4% fewer sales were registered, marking the fourth consecutive decline. The National Association of Realtors (NAR) expects a further decline in sales figures in the coming months due to the sharp rise in mortgage rates.

Germany's industry association pessimistic about the near future

The Federation of German Industries still expects economic growth of +1.5% in the current year compared with the forecast at the beginning of the year of +3.5%. The industry is going through a double crisis with the effects of the pandemic and the Ukraine war. Regarding dependencies on Russian energy, BDI President Siegfried Russwurm said the war had exposed the Achilles' heel of German industry and people had neglected the risk – “now it's burning like a torch.” An interruption in gas supplies would have catastrophic effects on manufacturing industry and would inevitably send Germany's economy into recession, the industry association warned.

Economic Indicators June 22

MEZ Country Indicator Last period
08:00 UK Consumer Prices (May, y/y) +9.0%
08:00 UK Producer Prices (May, y/y) +14.0%
15:00 SZ SNB President Jordan speaks
15:30 US Fed Governor Powell speaks


Earnings Calender June 22

Country Company Period
SWE Volvo Capital Markets Day


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