Tolomeo Capital

- US retail sales and industrial production should continue to weaken. - Solid S&P Q2 earnings must support markets. Tomorrow's US retail sales and industrial production on Wednesday should confirm a further gradual slowdown in the US economy. It is therefore important that US earnings do not disappoint in order for the US equity markets to remain well supported. However, market expectations for US earnings growth in the second quarter are quite high at around 10%. It will therefore not be easy for companies to fulfil expectations. In the eurozone, the markets are focussing on the ECB this week. Once again, market expectations of ECB President Lagarde are very high. The markets are expecting signals as to what will happen after the first interest rate cut. We expect the statements to remain vague and data-dependent. The European markets are unlikely to be happy about this. What does this mean for portfolio allocation? The US allocation remains the main component of the portfolio, but should be very well diversified to manage volatility during the reporting season. If earnings and/or macro data disappoint, long-term rates should continue to decline. Interest rate sensitive sectors, such as technology, consumer discretionary and real estate, should be stabilised. In the eurozone, indices and companies with high international exposure should continue to perform better. The Eurostoxx 50 is a good example. Outside the eurozone, we remain positive for Switzerland and the UK.

A crucial week for the Fed and the market outlook for August - Focus on US inflation - Slow decline is enough - Fed can give a signal at the end of July Following Fed Chair Powell's supportive speech at the ECB forum in Sintra and the clear signs of a slowdown in the latest US economic data, the markets are focusing on the latest US inflation data on Thursday. If these do not come as a negative surprise, the Fed may give a clearer signal at the end of the month that it will cut interest rates in September. Although the ECB has made its first interest rate cut, a pause is likely to follow in July. The markets are therefore expecting indications of what will happen in the coming months after the next meeting on 18 July. If the statements remain vague, as we suspect, the European markets are likely to react negatively. A positive trend is likely to wait until the ECB gives clearer signals. What does this mean for portfolio allocation? We are sticking to our core allocation in the US but are prepared to react to a negative inflation surprise if necessary. In this case, the exposure should be adjusted to the approaching summer break in August so as not to be hit too hard by strong fluctuations. We still consider underweight exposure to the eurozone to be appropriate. Very weak growth and political risks are hardly a good basis for the markets. Following the UK elections, we expect a positive sentiment effect among households and companies. UK equities should benefit from this, especially in contrast to the turbulence in France. Swiss equities should also benefit from the risks in the eurozone.

US markets continue to enjoy more tailwind from the economy and politics - Eurozone correction risk due to economic and political factors. - Switzerland and the UK offer alternatives. - US equities are benefiting from a robust economy and the election campaign. European equity markets have so far ignored the risk scenario of persistently weak growth in the eurozone and are focusing on ECB interest rate cuts. However, we see the risk that investors will react to the weak European economic data at some point - postponed is not cancelled. We therefore see a correction risk for the markets in the eurozone. In the USA, the economy is weakening only slowly. This continues to provide a better basis for the US equity markets. US equities are receiving additional support from the election campaign. The positive reaction to Trump's stronger performance in the first debate with incumbent Biden points in this direction. Overall, the political and economic environment in the US therefore remains more attractive than in the eurozone. What does this mean for portfolio allocation? The core allocation in the USA should be maintained until the momentum noticeably wanes. Diversification should be achieved through different US markets, sectors and strategies. The European portion of the portfolio should more strongly reflect the risks in the eurozone. We would therefore reduce exposure in the eurozone and build up exposure in Switzerland and the UK. Global investments, e.g. in emerging markets, are still not very attractive, as China's economic weakness, an uncertain interest rate outlook and a strong US dollar do not create a favorable environment.

Fed raises high market expectations - Stable growth and falling interest rates create a perfect environment. - Markets remain even more optimistic than the Fed for the interest rate outlook. - It all sounds a little too perfect. Profit taking remains important. The slight decline in US inflation to 3.3% overall and 3.4% in the core rate further supported the already positive sentiment on the US equity markets. As a result, the markets expect a further gradual decline in inflation, so that the markets continue to price in a first interest rate cut in September. Although the latest Fed projections only show one rate cut by the end of the year, Fed Chair Powell softened the message of the dot plot and emphasized that the economic data are decisive. In addition, the Fed projections for 2024-26 show stable growth of around 2%. The positive Fed growth scenario compared to a very uncertain recovery in the eurozone is the key aspect for our allocation. The US equity markets remain relatively more attractive and should follow a less steep but positive trend. Investors should therefore stick to their core allocations in the US and to a lesser extent in Europe. The large European companies and share indices in particular should trade more strongly correlated with the US markets. However, the political uncertainties in the EU must subside again for this to happen. In terms of sector allocation, we continue to believe that diversification of technology exposure is important. The politically well-supported industrial theme provides a solid basis. In addition to industrials, materials and financials are sectors closely linked to this theme.

Now it's getting serious! - US PCE inflation is falling slightly, but at the same time consumer spending is weakening - a critical economic signal. - German ifo business climate points to a difficult recovery. - Markets have high expectations of the ECB. Last week's trading dynamics once again showed that the equity markets remain fully focused on monetary policy and movements in long-term interest rates. Against this backdrop, the focus this week is on the ECB meeting on Thursday and the US labor market report on Friday. The ECB is likely to cut interest rates by 25 basis points. However, the markets are primarily interested in what can be expected afterwards. If ECB President Lagarde remains vague, the stock markets will react negatively. The US labor market report on Friday is likely to have a hard time topping the April report. This showed lower job and wage growth as well as a slight rise in the unemployment rate, i.e. all components moved in the direction targeted by the Fed. Only if these trends are confirmed do we expect the markets to react positively. At the beginning of a week with important US data, an ECB meeting and a European election, investors should either enter the events with a slightly reduced risk or keep the allocation constant and only intervene if volatility rises more strongly. In other words, risk management is ok, but potential allocation adjustments should only be made once the data and events can be interpreted correctly.