Why the stock markets are optimistic - analysis by Yves Bonzon, investment director at Julius Baer

Why the stock markets are optimistic - analysis by Yves Bonzon, investment director at Julius Baer

According to a report by www.fuw.ch, writes Yves Bonzon, head of investment at Julius Baer, ​​that the starting position for the stock markets is completely different than at the beginning of 2023. The pessimism in the markets lasted for most of 2023, but investors “capitulated” in November and adopted a more positive view. The volatility index Vix is ​​trading close to historic lows at 12.6 points. Bonzon also bases his finding on the narrowing of US high yield spreads and valuation differences between sectors of different markets based on historical averages. He reads from this that the markets expect a decline in inflation towards the central banks' 2% target, moderate growth in the global economy and rising corporate profits in the USA. He sees the biggest risk - apart from unexpected external shocks - from an acceleration in growth, which would make interest rate cuts less likely.

Investors' more positive outlook and low volatility index readings suggest markets are optimistic. This could lead to a further increase in stock prices as investors may be willing to take more risks and invest in the stock market. The tightening of US high yield spreads suggests increased confidence in the economy and companies, which could also lead to stronger demand for stocks. However, the risk of an acceleration in growth remains, which could lead to less accommodative monetary policy and weigh on the markets.

Overall, current developments point to a positive mood on the stock markets, signaling further growth and rising corporate profits. This could encourage investors to invest in the stock market and lead to further upward movement in prices. However, financial professionals should continue to monitor the risks, particularly regarding possible unexpected external shocks and a possible growth acceleration.