The overall market situation has been predominantly positive, with the equity markets performing especially well. The Q2 earnings season has also brought positive surprises on both sides of the Atlantic.
The strong performance of the equity markets has kept the general market sentiment positive. The tense situation in the Middle East and the resulting rise in market interest rates have, however, weighed on the returns of the fixed income markets. Markets are closely watching the possible of effects of the increase in inflationary pressures on central banks’ interest rate policies.
The positive mood in the equity markets has continued, driven especially by strong earnings growth. Emerging markets, which performed very strongly in the spring, levelled off during the summer. The decline in semiconductor companies’ share prices has particularly weighed on the South Korean equity market, as well as on emerging markets more broadly. In the USA, share price performance has been steadier and moderately positive.
The tech sector as a whole has developed relatively well, but with some variation. The share prices of semiconductor companies have fallen, while large technology companies have picked up again. The internal dispersion within the tech sector has increased, as the sector includes a diverse range of companies that respond differently to different market situations. There is a significant difference here compared to recent years, during which the growth of the tech sector and almost the entire global equity market has relied mainly on a few large American tech giants.
This year, the energy and tech sectors have shown the strongest return trends in both the USA and Europe. Industrial companies, led especially by commodities companies, have also performed well as the AI boom has brought investments to the industrials sector.
In the fixed income markets, the return trend has been more moderate and at times even sluggish, weighed down by steadily rising interest rates. Especially in Europe, interest rates have been rising for some time, which has been reflected in the returns of fixed income investments.
The situation in the Middle East has increased inflationary pressures particularly as a result of the rise in energy prices, which in turn has raised the interest rate level. The risk remains that central banks will have to tighten their key interest rates.
Longer-duration fixed income investments in particular have suffered from rising interest rates, as they are typically more sensitive to changes in the interest rate level. Credit spreads on corporate loans have, in turn, remained relatively low, close to the levels at the beginning of the year.
The Q2 earnings season is nearing its end in the USA. The average earnings growth of 50 per cent clearly exceeded expectations, while net sales growth of 14 per cent also surpassed forecasts. Strong earnings growth has been seen especially from tech companies and the energy sector, but generally speaking, earnings growth has been quite broad-based.
The earnings season has also been strong in Europe, with around three quarters of companies having reported their earnings. Average earnings growth of 25 per cent has been stronger than expected, and net sales have also increased by about 9 per cent.
The energy and tech sectors have also grown strongly in Europe. The weight of technology companies is, however, smaller in Europe than in the USA, so the sector’s impact on overall development is more moderate in Europe. Instead, the consumer discretionary sector, especially the automotive industry, continues to report weak figures. Overall, earnings growth has nevertheless been strong and fairly broadly distributed across different sectors.
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