Bull Run Continues Despite Mounting Warning Signs For Global Stock Markets

Over the long term, we all know that the U.S. stock market has performed very well, accumulating over +10% per year on average for nearly a century. We also know that along the way, investors have had to endure steep declines—such as the -20% drop in the first half of this year. For the time being, however, we are enjoying some respite.

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Proof of this is, for example, the Nasdaq 100, which posted its third consecutive week of gains, its longest weekly streak since last April. Moreover, over the last 25 trading days, we have seen intraday gains of more than +1% 13 times, a rare occurrence.

This context encourages investors to return to U.S. equity mutual funds, which are already accumulating over 3 billion subscriptions in 2022.

Money is also flowing into the dollar, as shown by Bank of America's survey of mutual fund managers. Buying positions in the dollar are at levels not seen in 7.5 years. Here I am talking about the strength of the dollar against other currencies.

Friday's U.S. employment data was good and well above expectations. In fact, all the jobs lost during the pandemic have already been recovered.

But contrary to what one might think, those figures are negative for equity markets, as it implies that the Federal Reserve has no reason to slow down its interest rate hike. Had the data been negative, they could have considered not continuing with such an aggressive rate hike cycle (which Chairman Powell even hinted at).

With the current employment figures, there is a greater probability that we will see another 75 basis point rate hike at the Fed's next meeting in September.

European banks had one of their best quarters of the last decade, as the rise in interest rates propels the net interest margins—i.e., the difference between the interest paid by the bank to the borrower and the interest charged to the lender.

15 of the top 20 banks in the continent exceeded profit estimates thanks to higher interest income and debt trading. The ten largest listed banks in the European Union posted a combined profit of EUR 13.9 billion, the third best in the last ten years.

In addition, provisions for non-performing loans declined in the quarter, as banks had built up reserves earlier in the year.

The chart below shows the Stoxx 600 Banks, and we can see how 2020 was a turning point when the index fell to 2009 levels and touched strong support.