MSCI World (in euros) lost 5.0 percent in May, so the old slogan of “sell in May and walk away” is actually quite fitting again this year.
If the reason is not to be found in the slogan itself, it can probably be found in the fear that Trump’s trade war with China looked like it was escalating in May. In addition, there is apparently a significant drop in growth expectations in the USA in particular, where long-term inflation expectations (5Y5Y) fell by 0.17 percent over the course of May. The PMI figures have plummeted across the major regions as companies have had to turn down their growth expectations as a result of weak demand.
These are some of the key points in Chief Strategist David Bakkegaard Karsbøl’s monthly comment for June.
Even though I continue to believe that the American economy will lose momentum in the coming months, I also believe that we will see an acceleration again from the start of 2020. Trump and the Republicans will have a vested interest in supporting the U.S. economy in order to maximise the chance of re-election. Trump has repeatedly used the S&P500 performance as a benchmark for his own success, which increases the likelihood that he will support the stock market politically if it stagnates too much.
Our models for industrial production and order intake for durable consumer goods in the U.S. shows that we can expect a general weakening approaching zero growth over the coming five to six months. However, they also show that especially order intake will pick up again from the start of 2020.
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