Investing

A stock market rally without champagne

Fed President Jerome Powell painted a bleak picture of the economic situation in the United Statesimago images / Xinhua

It took the Fed a few words to bring stock markets to their knees this week. Between four and more than six percent it went down, it was the one biggest correction since the March slump. The peculiarity is that the Fed did not announce so much new, but only found out once again what everyone knows, suspects and fears anyway: It can a second wave of the pandemic and it will take a while for the economy to recover.

“There is a very uncertain path ahead of the economy,” said Jerome Powell, head of the Federal Reserve. He spoke ofbiggest economic shock we can remember“. Now there is a rule for many topics that a lot has been said about it, but not by everyone – and this is something special for central banks. Even if they found that the sun was shining at the weekend or the earth was a sphere, it would cause some reaction. So: what’s the news?

There was one sentence that made one stand out in its clarity and diction, even its harshness: “We are not even thinking about a rate hike”Powell said. So interest rates in the United States will remain at the zero line for years – a situation that Europeans are already used to. Little hope and a lot of caution until 2022.

The markets remain volatile and uncertain

The market was ripe for this correction, and it may not have been the last – the Dax alone had risen 19 percent in eleven days, and the Nasdaq tech index had even surpassed the pre-crisis level. Powell was the trigger, not the reason for the correction. There had been many for a few weeks Investors and commentators feel queasy, given the many indices that have been rising for weeks as the pandemic spread across the globe. The pessimists (the slightly larger camp) warned that the optimists were too frivolous to continue speculating on a V-shaped recovery. The optimists found that the stock exchanges always lead the real economy and anticipate the recovery.

Nasdaq 100 index

Nasdaq 100 index chart

Investors must therefore be prepared that such corrections and slumps will occur again and again, the markets remain volatile and uncertain. There is also the fact that we the consequences of this crisis more and more black and white see. So far, we have mainly had to work with vague or bleak forecasts, with figures that gave us clippings, clues – such as data from Airbnb, Apple or reservation services. Much data from April and May was not yet available. Now we are getting more and more figures from the second quarter, this week about the news that German exports slumped by almost a third in April.

Interest rates at zero or below for many years will affect all asset classeswhen the cash buffers dissolve everywhere and the return is sought with the fresh money. Shares will benefit from this, even if company sales decrease and dividends are cut.

This is probably why many investors speak of the “Most hated rally” of all times because it takes place in the midst of need, misery, between waves of the pandemic and the new flood of money from the central banks. The Recovery since April was without euphoria, without champagne, the optimism as rare as the face masks in March. The fear of missing something grapples with a bundle of completely new fears that involve a lot of uncertainty. It is said that as long as there is no vaccine, there will be no concerts and festivals. This also applies to the confidence in the markets.


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