21.02.25 - Ignored downside risk

On the weekend, German election will take place. Based on the latest performance on the stock market, investors expect a positive outcome for future economic reforms needed.
Economic leading indicators in Europe are rather on the weak side without sign of a fast recovery.
In addition, the political tension is played with the US playing a dominant role and almost no day without announcement which are rising questions about the way and role of each region in the future.

Markets: stock markets hold up quite well. China outperforming. Cryptos, first day of stronger upmove, interest rates lower, US dollar up while euro weakens.

My View: In my view, the overall risk stance is too euphoric. The downside risks should not be ignored at the moment. Election, political uncertainty and instability in France and Germany, with the new role of US dominance and Europe in the back seat. There is also room for negative economic surprises, higher inflation and less interest rate cuts as estimated.
It seems China did its homework and is now the time to benefit.

Even there is a chance of a melt-up in such a euphoric environment, I do not run the portfolio with too high risk allocation and I am positioned for certain pull-backs. Should the momentum turn, it could quickly go in the other direction.

I continue to analyze market patterns, observing that over the past two years, market movements have become faster and at the same time more intense compared to historical trends. This shift may be driven by the growing influence of AI-driven trading tools and financial influencers.

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