Is the market behaving as it did in 1945?, interest rates rising and valuations falling, USD as strong as in 1987.

Chart of the week

The chart shows the performance of the U.S. stock index S&P 500 from 1943 to 1949 (pink line) and from 2019 to 2022 (black line).

Why this is important

At present, the stock market is behaving in a similar way to the years 1942 to 1947. Many analysts expect this correlation to continue over the next few years. This would suggest a longer sideways movement.

The 1947 time period includes the Marshall Plan to rebuild Europe. This has led to a similar rise in interest rates as since last fall. The collapse of the bond markets and the loss in value of bonds, which were considered safe, was the biggest since 1947. Many observers therefore assume that the effects on the stock markets will be more or less the same.

The chart shows the number of interest rate hikes by all the world's central banks. It has reached an all-time high since 1982. In the current week, it was above all the renewed increase in key interest rates in the USA and Switzerland that made the headlines.

The additional intensification of the war in Ukraine with the (partial) mobilization of the Russian army put prices under strong pressure.

The chart shows the price/earnings valuation of stocks in the Russell 2000, one of the most widely followed indexes for smaller companies in the US. Valuations are approaching interesting entry levels. Currently, a lot of negative developments are being anticipated.

Research also shows that stocks of companies often bottom out after the third interest rate hike. However, due to the uncertain geopolitical situation, we are waiting here and do not want to invest against the current trend.

The chart shows the stance of the individual members of the U.S. Federal Reserve Committee (blue dots), which sets key interest rates in the United States. Currently, opinions are very homogeneous, but for the forecasts for 2024, they diverge widely. The black line also shows the expected interest rates, derived from the futures markets. On average (pink line), the members of the U.S. Federal Reserve Committee see interest rates falling much more sharply from 2024 to 2026. This is an indication that the markets are currently too pessimistic in their assessment of the situation.

USD as strong as in 1987.

The chart shows the purchasing power of the USD since 1980. One can see impressively how strong and extraordinary the rise of the USD since 2012 is. We are currently seeing the strongest USD since 1987. The peak is probably not yet reached, but long-term investors should look for alternatives to the USD.

Additional image sources: Initial graphic Designed by Freepik

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