Stock market overview for summer period

There was not much happening in stock markets during the three summer months, however, against expectations, the US stock market outperformed European stock markets during this period. US stocks reached new all time highs in early August, mainly driven by the US technology/internet sector (which is now looking very overpriced) only to pull back since then due to geopolitical tensions driven by North Korea’s nuclear tests. European stock markets have been in a downward trend since mid-May mainly due to the surge in the euro vs other currencies. A stronger euro is expected to negatively impact the Eurozone’s trade balance as it makes Eurozone exports more expensive in other currencies and imports cheaper in euro terms. As a result, during the summer months, European stock markets have given up all of the gains of late April/early May that were driven by the positive French election results. US banks have declined sharply since early August, after solid gains in June and July, as geopolitical tensions have depressed US yields to one-year lows while Eurozone banks had a similar behaviour, performing well in June and July due to expectations that the European Central Bank will scale back its quantitative easing program soon (which implies higher eurozone yields and a stronger euro) and declining sharply since early August due to geopolitical tensions. We view North Korea driven corrections as transitory that provide opportunities to add to existing positions on short-term pullbacks.