In the last four quarters summing into a year now, the global equity proxy fund (URTH) has risen by 30%. Despite geopolitical tensions and major countries going through elections, there have been limited disturbances in stock markets. But since mid-July there have been some changes to this scenario. There are more frequent and heavy disturbances on a weekly basis. The question now is whether these will increase in the coming months.
In the past, the consistency rise with little disturbance was contributed by the high manufacturing growth rate along the service sector recovery. During the same period a decline in inflation resulted in a decrease in worries related to further interest rate changes. But in the past few months, the manufacturing sector has been indicating a global slowdown resulting in growth estimates revisions.
During the same period, interest rates were stable thus estimates of participants were also stable. However, given the changes as central banks move to rate cuts, the estimates are getting optimistic that if not met might result in strong negative adjustments.
The coming months might be more tricky to navigate as US elections and the risk of escalation in the Middle East grow. In addition to this, inflation is entering a positive seasonality period and already some reports are indicating rising pressure. This might pause the rate cuts and risk the estimates to change.
This might push market volatility higher but given that next quarter is having favourable seasonality it is difficult to address the direction it will end in.
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