Investors continue to take profits in equity markets after the minutes of the Federal Reserve’s latest meeting heightened concerns that monetary policy could remain restrictive for longer. The Fed appears to be taking inflation risks more seriously than some investors had hoped. Even strong demand at the latest US Treasury auction was only able to temporarily halt the rise in bond yields.
The previously resilient technology rally is also losing momentum. Even Samsung Electronics’ strong quarterly results failed to trigger further buying in semiconductor stocks. Instead, investors used the positive news as an opportunity to take profits. When even convincing corporate earnings are no longer enough to lift share prices, it is a warning sign for the broader equity rally.
At the same time, the conflict involving Iran and persistently high energy prices remain major headwinds. They fuel inflation, increase pressure on central banks and push financing costs higher. As a result, the balance between equities and bonds is increasingly shifting. The more attractive bond yields become, the harder equities have to work to justify their elevated valuations.
Equity markets are therefore losing support on several fronts. As long as neither energy prices nor bond yields show signs of easing, investors’ appetite for substantial equity purchases is likely to remain limited. From a technical perspective, the DAX is expected to trade within a range of 24,900 to 25,250 points today.
