Excellent stock market sentiment: Why the stock market rally is based on uncertain logic

Excellent stock market sentiment: Why the stock market rally is based on uncertain logic

According to a report from www.nzz.ch, the stock markets are currently experiencing excellent sentiment. Since the end of October, share prices have had one direction in particular – upwards. In the USA, the euro area and also in Switzerland, the major stock markets are recording significant growth. The reasons for this are varied. On the one hand, inflation has fallen, which has led to expectations that interest rates could be lowered in the near future. On the other hand, it is also expected that central banks will cut interest rates in the future. These expectations have led to rising stock prices.

The implications of these developments are far-reaching. On the one hand, lower interest rates lead to lower financing costs for companies and thus potentially higher corporate profits. This in turn leads to rising stock prices. Additionally, future profits appear more valuable when interest rates are lower, which also contributes to rising prices. Furthermore, other investments such as fixed-interest securities are becoming less attractive, which is causing investors to invest more in stocks and thus stimulating the entire stock market.

However, it is important to note that the historical correlation between interest rate cuts and stock prices is not always reliable. There have been cases in the past where stock prices have not risen despite interest rate cuts, for example in times of economic slowdown or recession. In addition, the assumption that stocks and bonds are inversely correlated and are therefore suitable for diversification is not always correct.

Given these uncertainties, it is important for investors not to rely exclusively on supposed patterns and rules, but rather to take into account the diverse factors that influence the stock markets. For example, the expectation of falling key interest rates should also be seen as a warning signal for uncertain macroeconomic conditions. The extreme expectations of future developments should therefore be viewed with caution.

The current developments on the stock markets should therefore not be based solely on the expected interest rate cuts. Rather, it is advisable to consider the entire economic environment and potential risks in order to make informed investment decisions.