Emotional stress test for underweighted investors?u

- No new world: "Peak in ifo growth optimism urges caution. In past cycles over the last 20 years, the reward/risk ratio for equities has deteriorated at an upper turning point in the growth expectations. Overall, the leading indicators point to a slowdown in the growth dynamic looking to 2011."
- Reporting season: "Positive interim track record for Germany. In July, the German equity index reported positive earnings revisions for the index earnings estimates for 2010 and 2011. In the other large EMU countries, the negative revisions predominate."
- Outlook: "Bet on the expected direction of the leading indicators. Falling leading indicators mean a headwind for the equity market and argue for a sideways move in 2H10. The equity market is currently trading near the upper edge of the sideways movement."
- STOXX sectors: "Predominantly negative earnings revisions. Since the beginning of the 2Q10 earnings reporting, the earnings expectations were raised in only two sectors but reduced in 17 sectors."
- Hedge within the defensives: "Firmer EUR supports Telecom versus Food & Beverage. The relative performance of Telecom/Food & Beverage is closely correlated at the moment with the EUR development."

Unicredit Market Outlook 20100805

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