Record highs could be in jeopardy if the Fed disappoints on rates

That being said, economists are placing good money on the June meeting for a change in policy. But what about the US dollar? Klement’s best bet is that the EUR/USD trade may be on the way down if, as he believes, the ECB has more potential to cut rates and at a faster speed.

(AI Video Summary)

Earnings performances of major companies

In a recent IGTV video interview, Joachim Klement , Head of Strategy at Librem, shared his thoughts with Jeremy Naylor on the current state of the US and European stock markets. In the short term, Klement expressed caution about the US market and stocks in general, specifically mentioning the NASDAQ. He believes that these markets have become overbought, which means that prices have increased too much and may not be sustainable. But looking ahead to the next six months or year-end, he remains positive about both US and European stocks.

Klement pointed out that the US earnings season has been strong, with many companies reporting better-than-expected profits. This indicates that the foundations of the market are still strong. However, he did mention that there is a concentration of the market in a few big companies like Apple, Microsoft, Amazon, Meta, and Google. This is unusual for the US market, but quite common internationally. If these large companies were to disappoint with their earnings, it could have a significant negative impact on the market.

Impact of the central banks

The actions of central banks, like the Federal Reserve and the European Central Bank (ECB), are also important factors to consider. The market currently expects a cut in interest rates by the Federal Reserve in June, and if the Fed gives any indication that this won't happen, it could lead to a correction of 5% or more in the stock markets. The decision by the European Central Bank to cut interest rates could also affect the EUR/USD trade, as the European economy is in recession and has more room for rate cuts compared to the US.

Klement also mentions that the European markets are more vulnerable to a short-term consolidation than the US. This is because the earnings growth and business conditions in Europe have been weaker, and companies are facing more pressure on their profit margins due to a lack of demand. With the potential support of rate cuts being removed, the European stock markets could be negatively impacted.

Overall, Klement remains cautiously optimistic about both the US and European stock markets. He emphasises the importance of monitoring the actions of central banks and the earnings performance of major companies in order to make informed investment decisions.