The big stock market summer trend check

"Sell in May and go away" is a common stock market saying that regularly promises weakening share prices in the summer months. Contrary to this, however, the stock markets are performing at a high level this year.

"Despite the occasional summer thunderstorm, the chances of a pleasant summer on the capital market are good," says Thomas Meier, Portfolio Manager in Mainfirst’s Global Dividend team.

He names six factors that will determine the weather on the stock markets in the coming months.

  1. Good weather for economic data. "Stock market prices have reached new highs in recent weeks. Nevertheless, there was not much sign of summery highs across the board. It is individual stocks and sectors, in particular the technology sector in the USA, that are making up the current summer trend. The signs for a sunny summer for equities remain good: the positive economic and business data in Europe (purchasing managers' indices, employment, overcame , etc.) and an emerging normalisation in the US, combined with improved refinancing options and conditions, should lead to further highs on the equity markets."
  2. Upcoming interest rate turnaround lifts sentiment. "Not only the European Football Championship has led to a euphoric mood among market participants, but the ECB's interest rate turnaround has also been received positively. Inflation rates are falling on both sides of the Atlantic, but pose a dilemma for the central banks: if interest rates are cut prematurely, there is a risk of the inflationary spiral flaring up again due to the robust economic development. The result would be a painful correction on the capital markets, comparable to a severe sunburn. In addition, trade disputes with China, the upcoming US presidential election and geopolitical conflicts are making it difficult for central banks to take a long-term view."
  3. Political stock markets cause summer storms. "The European elections have confirmed the trend towards right-wing populist parties, while the established parties have recorded significant declines. In France, the electoral success of Marine Le Pen's right-wing party prompted President Emmanuel Macron to dissolve parliament and call new elections in July. This has also left its mark on the capital market: although Macron will remain in office until 2027, market participants fear lost legislative years until the next presidential election. Macron's power is limited by the election result. Although a shift to the right in parliament was prevented, the new distribution of seats does not make things any easier for the president. In addition, in view of the current national debt of 110.6 per cent (relative to GDP), the parties' fiscal spending projects are causing unease. Although governance in the new National Congress is becoming more cumbersome, there is no sign of a state and debt crisis.
  4. Signs of a thaw in IPOs. "An increasing number of companies are seeking to go public, including the IPOs of Swiss dermatology specialist Galderma and German retailer Douglas. Overall, the number of IPOs has fallen significantly since the financial crisis. Within the OECD alone, more than 30,000 companies have disappeared from the stock market since 2005. In the EU, the number of listed companies fell by 39.7 per cent in 2020. Nevertheless, the pipeline of stock market aspirants looks promising, with Shein's pending transaction for an estimated 58 billion euros being an icebreaker in the e-commerce sector."
  5. New opportunities for undervalued companies. "In general, in addition to IPOs, there is increased activity in mergers and acquisitions (M&A). The level of M&A has fallen significantly over the past year, opening up new potential for undervalued companies and their investors, particularly in Europe. According to Bain & Company, the international M&A transaction volume fell by 15 per cent last year to USD 3.2 trillion, the lowest level in a decade. This means there is a good chance of a new wave of takeovers from which investors can benefit. Consolidation on the capital market is increasingly being driven by private equity. According to McKinsey, the record income generated by the private equity funds launched has led to a capital stock of USD 3.7 trillion. This capital will be invested over the next few years and trigger a new wave of takeovers on the stock market. The falling level of financing is already reflected in the first deals in Europe. Traditional companies such as Novartis are competing for listed companies, as the current takeover process at MorphoSys shows."
  6. Small and medium-sized companies are in the shadows. "Investors should not only look for sunny spots, but also consider shady opportunities. Small and mid-capitalisation companies are currently living a shadowy existence on the stock market. They are trading at an average discount of 30 per cent compared to their own history over the past two decades. In Europe, this was previously due to high interest rates, weak economic data and geopolitical uncertainties. There are now signs of a turnaround, at least in the areas of interest rates and growth. This gives investors the opportunity to enter attractive business models at relatively favourable valuations."
Thomas Meier
Thomas Meier

Media contact

Wim Heirbaut

Senior PR Consultant, Befirm

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