S&P 500, DAX 40, FTSE 100, Nikkei 225

S&P 500, DAX 40, FTSE 100 and Nikkei 225 Fundamental Forecast Talking Points:

  • seasonality may be S&P 500and other major indices recently rebounded, but structural issues remain
  • A combination of systemic fundamental issues sends major equities lower, but rapidly deteriorating growth forecasts top the list
  • Monetary policy should be seen as an equally effective and heavy threat to markets, with central banks pledging rate hikes despite capital markets woes

Fundamental predictions for the S&P 500: Bearish

After seven straight weeks of bearishness, the S&P 500 has finally found some seemingly balance and signs of a rebound. This could be the start of a major reversal after the longest losing streak since March 2001, but I think it’s more likely a temporary rebound. Statistically, June was one of the weakest months of the year, with the early start of the summer downturn leading to a significant drop in activity levels. Usually, this will be a favorable factor, but it is not a strong feature when fundamentals are very difficult and firm belief is required to overwhelm the momentum. Fundamentally, the conditions are onerous. We’re past earnings season, which leaves us with even tougher macro questions. The outlook for economic activity has deteriorated sharply since the International Monetary Fund warned the world’s largest economy would suffer along with the rest of the world. On the growth front this week, key event risk in the ISM Manufacturing and Services survey will be a strong proxy for GDP.Otherwise, the Conference Board’s Consumer Confidence Survey and Friday’s May National Contact Point Will reflect the American consumer, one of the most powerful forces in the global economy.

Chart of historical average performance of the S&P 500 and VIX by calendar month

Stock market outlook: S&P 500, DAX 40, FTSE 100, Nikkei 225

Chart creation By John Kicklighter, data from Standard & Poor’s

DAX40 Fundamental Forecast: Bearish

Although the Germans Dax 40 The index is not far from its official “bear market” (defined as a 20% retracement from its all-time high), which has progressed less than the U.S. and has seen a far more choppy recovery than its U.S. peers. On important macro themes, the situation for this benchmark European indicator is far more problematic than for similar indicators. The question is whether these problems will continue to be affected the following week, or if they will take longer to unfold. The outlook for Europe has been one of the most worrisome from a growth perspective, with groups such as the International Monetary Fund stressing that energy concerns related to Russia’s invasion of Ukraine are just one prominent factor. Eurozone sentiment surveys are likely to touch on this theme. Perhaps more problematic is the battle with hawkish ECB policy. The group has only recently made it clear that a rate hike is imminent, with President Lagarde saying the benchmark rate could return to positive by the end of September. With the release of Eurozone and German CPI data, the market will likely continue to raise its expectations to levels more commensurate with their US, Canadian or UK counterparts.

Germany DAX40 Index Chart (Daily)

Stock market outlook: S&P 500, DAX 40, FTSE 100, Nikkei 225

Chart created in trading platform

FTSE 100 Fundamental Forecast: Neutral

When is there no news, good news? The general momentum in capital markets has been negative for most of 2022.Despite the overall decline in risk trends, it is worth noting that the UK’s FTSE 100 The index is much better balanced than most of its major peers. In terms of economic potential, the UK (International Monetary Fund) downgraded outlook for 2022 was almost as severe as the Eurozone – down 1.0 percentage points to 3.7%. Also, on the monetary policy front, the Bank of England has moved ahead and has consistently increased the funding burden on the economy. Still, the FTSE 100 hasn’t even incorporated the daily close into a “technical correction” — a 10% retracement from cycle highs. While there will be meaningful fundamental events in the week ahead, not many in the way of systemic importance updates. This breathing space and the extended holiday weekend starting Thursday may help provide some relief to this market. That said, I don’t think these scenarios are particularly conducive to a truly bullish backdrop.

Chart of UK FTSE 100 overlaid with UK 2-year government bond yields (weekly)

Stock market outlook: S&P 500, DAX 40, FTSE 100, Nikkei 225

Chart created in trading platform

Nikkei 225 Fundamental Forecast: Neutral

The Bank of Japan and its governor Haruhiko Kuroda have pledged extraordinary stimulus to support Japan’s economy, even as other major policy groups around the world have turned to clearly and powerfully hawkish regimes.This doesn’t help much with rising inflationary pressures in the country, but it does represent a boon Nikkei 225. Stock indexes have not escaped the global pressure as higher commodity prices tax imports and growth potential, while slowdowns in major trading partners such as the United States and China represent a severe dampening of export potential. This week, however, fewer measures were taken against this particular threat. In Japan’s filings, there were some meaningful updates, including first-quarter capital spending, April retail sales, industrial production and unemployment. However, either bullish or bearish, these are unlikely to fully play the market.

Overlaid chart of Japan’s Nikkei 225 and 10-year JGB yield inversion (weekly)

Stock market outlook: S&P 500, DAX 40, FTSE 100, Nikkei 225

Chart created in trading platform