Investors bet inflation pressure can be absorbed
Sentiment across global equity markets remains positive. Investors are betting that higher energy prices will not translate into a renewed inflationary spiral, but will instead be largely absorbed by companies.
That would allow the economic recovery to continue as consumers gradually regain their appetite to spend.
AI and semiconductor stocks drive the rally
Recent quarterly results from numerous companies in the United States and Europe support this view. For now, however, semiconductor and AI stocks remain the main drivers of the current rally.
The exceptionally strong momentum in these sectors is generating significant revenue and earnings growth across industries directly exposed to the AI investment boom. Amid all the enthusiasm, however, investors should not lose sight of the fact that every cycle eventually comes to an end, particularly as a number of self-reinforcing effects are currently emerging through cross-holdings and interconnected business relationships.
DAX rally begins to trigger vertigo
The spillover from soaring US technology stocks and elevated valuations is providing fresh momentum for German equities, repeatedly pushing the DAX to new record highs.
At these levels, however, some investors are beginning to suffer from a degree of vertigo. With few fresh positive catalysts available, profit-taking is starting to set in.
