Although European stock indices have recovered noticeably from the sharp price losses in March, volatility remains high. In addition to the effects of the war and the sanctions – in particular, the sharp price fluctuations for oil, gas and other raw materials – other developments are also dampening sentiment across stock markets.

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The war in Ukraine is keeping the world on tenterhooks and its economic effects are being felt across the markets, but other developments are also dampening equity market sentiment. While in the US the Federal Reserve's intention to further tighten its monetary policy is having its first (negative) effects, in Europe, China's zero-Covid policy is spoiling the mood as tight closures are likely to lead to further disruptions in global production chains.


The planned stronger tightening of US monetary policy is weighing on US equities, especially technology stocks which are overvalued, but the economic environment still looks pretty good. Not surprisingly, the Fed thinks the significant tightening of monetary conditions is advisable and economically bearable.


In Europe, citizens are also suffering from high inflation, but unlike in the US, price pressure is essentially coming from the energy side and supply chain bottlenecks. Both are factors that cannot really be influenced by a central bank with its instruments. In this country, the risks of a wage-price spiral are manageable. Moreover, the European economy should benefit from the inevitable investments in a more broadly based and sustainable energy infrastructure and in a European security architecture.


Experience teaches that volatile times are not a bad time to look for medium-term return opportunities. Despite the simultaneous pressures on bonds and equities in recent months, investors with well-diversified portfolios – even taking currency positions into account – were able to achieve total returns that were significantly less negative than the separate performance of European equities and bonds. This shows that well-diversified and broadly positioned portfolios bring a certain stability even in difficult times. Building on this stability, it could then also be possible to realise return potential for the future.


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