The deceptive normality - investment strategies for the German stock market

The deceptive normality - investment strategies for the German stock market

A certain level of normality currently appears to have returned to the global stock and bond markets. The MSCI World global stock index is up around seven percent this year, while the Barclays Global Aggregate bond index is down slightly. This development points to a growing global economy, accompanied by rising corporate profits and stable, although still too high, inflation.

Although Germany is currently considered the sick man among the G7 countries, the German stock index Dax has been able to gain ground since the beginning of the year. Despite this relative weakness of the German market, the strength of the USA predominates, leading to a positive overall picture of the stock markets. The volatility index for US stocks (VIX) has reached a level reminiscent of the stable times before the pandemic.

The US Federal Reserve has successfully reduced inflation without plunging the economy into recession, which can be considered an impressive achievement. However, achieving the target of a sustained inflation rate of two percent could be difficult, especially with wage growth continuing at around five percent year-on-year.

In comparison, the European Central Bank (ECB) is in a less comfortable position. Despite a weaker economy in the Eurozone, inflation pressure is significantly higher here. Rising unit labor costs in the eurozone could lead to a renewed rise in inflation, particularly in countries like Germany.

Investors are therefore recommended to invest free funds primarily in stocks, ideally in a global portfolio with a high proportion of US stocks. Central banks also offer the stock markets a certain level of protection against sudden declines. For short-term expenses, savings should be held in investments with short maturities, although interest rate risk can be minimized through staggered maturities.