​PFA’s chief strategist sees market upturn despite mood-driven summer dip

Danish pensions giant PFA is expecting prices on financial markets to rise again before the end of the year, with its chief strategist characterising the slump over the last two months as merely mood-driven.

In a commentary, PFA said that whereas in the first half of 2023, markets had been fueled by the prospect of a soft landing, over the late summer they had been dragged down by the prospect of an extended period of high interest rates.

“Despite the change in mood, PFA has a positive view of the rest of the year, where interest rate and inflation developments will continue to be central,” the pension fund said.

Tine Choi Danielsen, chief strategist at the DKK763bn (€102bn) commercial pension fund, said: “We started with high inflation and fear of a sharp slowdown in growth. Since then, things have gone much better than expected.”

She said employment and consumption had supported the economy despite rising interest rates, and at the same time inflation had continued to decline.

“This had raised expectations for growth and provided strong tailwinds on the markets in the first half of the year,” she said.

“Over the summer, the mood has turned, and this is primarily due to the central banks’ announcements that interest rates need to be kept high for longer than many investors had expected,” said Choi Danielsen.

The Dow Jones index topped 35,600 at the end of July, but has since fallen back to 33,500 - little changed from the level at which it began 2023.

Choi Danielsen said the economic outlook had not changed radically in recent months, which was why it the latest slump was primarily a mood-driven dip on top of a positive first half of the year – and was due to a change of focus among market participants rather than a sea of bad news on the economic front.

“Where in the spring markets focused on the prospects for a soft landing with declining inflation, solid employment and new gains from tech companies’ work with artificial intelligence, the focus is now on high interest rates, a possible government shutdown in the US and fears of a winter with high energy prices, that can put pressure on consumption,” she said.

“In other words, the glass is half full,” the chief strategist said.

“At PFA, we are naturally doing what we can to maintain the good return, and we also see opportunities to build on, as long as growth, employment and inflation continue at roughly the same rate as now,” she said.

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