Thanks to an impressive final spurt, the stock markets have weathered August, which has often been a loss-making month in recent years, very well. In the first week of September, the focus will be on the US labor market data on Friday.
2 September 2024. FRANKFURT (Börse Frankfurt). Who would have thought it a few weeks ago? Although the stock markets came under significant pressure at the beginning of August, the DAX still managed to jump to new record highs at the end of last month. The all-time high, which is valid until further notice, is around 18,971 points. The spread between the low and high in August was therefore almost 2,000 points. On Monday morning, the German share index is seen at 18,915 points after closing at 18,906 points on Friday (weekly balance: +1.5 percent). The major US indices S&P 500 and Nasdaq 100 had turned positive in the last two hours of trading on Friday and are therefore generally providing good guidance for the start of the week. However, the results of the state elections in Saxony and Thuringia are seen as potential negative factors.
Goldilocks scenario vs. seasonality
Helaba's analysts cite the so-called “Goldilocks scenario” as the reason for the recent positive performance of the stock markets. This refers to the combination of moderate but steady growth in the global economy, declining inflation and a monetary policy that is at the beginning of its interest rate reduction cycle. “This is already being celebrated on the stock markets,” the strategists state. On the other hand, there is the phenomenon of seasonality, which on average indicates comparatively poor results for the DAX in September. According to the editors of Wellenreiter Invest, this could also have been the reason for profit-taking on the stock markets at the end of last week.
September is likely to be dominated by the central banks this year. Both the ECB and the Fed are very likely to cut key interest rates at their meetings in mid-September. After the most recent statements by those responsible and the fall in inflation rates in the previous week, anything else would be a very big surprise. Lower interest rates are fundamentally positive for the stock markets because the expected future cash flows of companies “assume a higher present value” when discounted by analysts, as LBBW emphasizes.
Interest rate cuts often not a price driver at the beginning
At the same time, the experts point out that the worsening economy as the “real reason for the turnaround in key interest rates” raises fears of lower cash flows being generated. In addition, the past has shown that “at least the early key interest rate reduction phase is characterized by falling rather than rising share prices”. LBBW also warns that the Big Six Alphabet, Amazon, Apple, Meta, Microsoft and Nvidia as “protagonists of the AI wave and drivers of the bull market” appear to be gradually losing favor with investors. The prices of these shares fell on average after the respective Q2 figures, following a significant rise in Q1. “The fact that AI darling Nvidia was punished on the stock market despite exceeding the high expectations placed on it fits into this picture,” the analysts state.
Meanwhile, economists at Commerzbank emphasize that the general market sentiment “is still on shaky ground”. A disappointment in the sentiment indicators could therefore quickly weigh on the fragile mood of investors. They see the US labor market report next Friday as the most important publication of the current week. Major jumps in share prices are “unlikely” in the run-up to the report.
Technical picture: price target 20,000 points
From a technical perspective, the DAX has left all important resistances behind for the time being with its new record high. In purely mathematical terms, the temporary slump in August now results in a “long-term price target of 20,000 points”, according to Jörg Scherer from HSBC. The significance of this round target is further underpinned by the 161.8% Fibonacci projection of the entire DAX correction from mid-May to the beginning of August (20,047 points). On the downside, the neckline of the “V-reversal” at 18,564 points is particularly important.
Important economic and business events of the week
Monday, 2 September
USA. Labor Day: Markets closed
Tuesday, 3 September
4.00 pm. USA. ISM manufacturing index: In the July data, the index had triggered a massive fall in US returns with a value of 46.8 points. According to Deka, regional business surveys already available for August indicate that the ISM index should rise again slightly to 47.5 points.
Wednesday, 4 September
Germany: Index review. The regular review of Deutsche Börse takes place four times a year, on the third working day in March, June, September and December. The changes decided on are published after the close of the US stock exchange and take effect around three weeks later.
Thursday, 5 September
8.00 am. Germany: New industrial orders: According to Helaba, the figures are unlikely to do much to brighten the mood in Germany. However, hardly anyone is currently expecting this. Specifically, the economists expect orders to fall by 1.5 percent compared to the previous month. The consensus forecast is even for a drop of 2.0 percent.
4.00 pm. USA. ISM services index: Helaba's strategists expect the recently unusually volatile index for August to “remain in expansion territory” (above 50 points). According to the experts, this would be remarkable and an expression of the solid US economy, as the index used to fall temporarily into recession territory during severe hurricanes - such as the last two. Specifically, a level of 50.5 points is expected, while the consensus estimate is 50.9 points.
8.00 am. Germany: Industrial production: In view of the weak development of the corresponding components of the Ifo Business Climate Index and the Purchasing Managers' Index, Commerzbank strategists expect weaker data for both new orders (see Thursday; estimate: -1.0 percent month-on-month) and production (-0.5 percent month-on-month).
2.30 pm. USA. Labor market report: According to Commerzbank, the unemployment rate, which rose to a multi-year high of 4.3% four weeks ago, must be put into perspective in view of the effects of hurricane “Beryl” and rising demand for jobs. Accordingly, the data should not have deteriorated any further in August. According to the economists, employment growth is likely to be even higher again at 150,000 jobs, as employees who dropped out of the statistics due to the hurricane are now returning to their jobs.
From Thomas Koch, 2 September 2024, © Deutsche Börse AG
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