One should expect a rally in August in the stock markets. Because, following the very weak growth of the USA in the 2Q2016, there isn't any single investor who thinks that the Fed will dare to raise the interest rate in the foreseeable future. And as ECB will not make additional monetary easing in the short term, there is no justification for gaining more value for the dollar. Both the EU and the US entered into a moderate increase in inflation trend, but the decline in oil prices can break this trend. When coupled with the exceptionally loose monetary stance of central banks, government securities yields in developed countries will be trading in low values. Furthermore, S & P 500 is trading at a forward 17.5 P/E as measured by the estimated profit, 2 points above the median coefficient. There is a false perception regarding the acceleration in economic growth of the emerging countries.
When one adds all this up, one can see that the direction of the money will be the Emerging Markets. Moreover, it is a necessity and because the liquidity rally does not take into account the main factors and does not care too much about the political risks. Roughly 25 billion dollars entered the Emerging Markets this July only and one may expect about the same amount to enter in August. Will this favourable trend continue until autumn? We don't have any concerns about the Fed for it cannot dare to raise the interest rate in September but the fear of the Fed may be replaced with the fear of a global recession or a wave of Emerging Markets private sector bond defaults. Due to this, it is difficult to make long-term predictions.
