First of all, the joy for German stocks has to be slowed down a bit, at least for the Dax. Because the well-known performance index takes dividends into account, while the price index is still missing a bit to set a new record. But this detail hardly spoils the good mood among investors.
The possibility that the first corona vaccine could be available by the end of the year and widespread by mid-2021 not only gives stockbrokers hope that the promised land could be close to normal. But for stock market traders, normality could be further away than expected. Because with the prospect of a vaccine, many things will get better, but not everything will be good.
On the other hand, there is plenty of fat on the price ribs for some stocks. US technology stocks could easily correct ten to twenty percent without anyone having to complain about valuations that are too cheap. This often leads to corrections in the entire stock market. This illustrates the exceptional position it has achieved in the major share indices through years of price increases. Their share is now so large that they alone can influence the market more strongly. The five largest US tech stocks, for example, make up around 20 percent of the S&P 500 – keyword FAANG stocks.
US Federal Reserve holds back
Another reason for a weak stock market could be the difficulty of getting the US Federal Reserve money to consumers. Because a concrete stimulus package is still missing and there is still no all-clear for a renewed shutdown in the USA in the first quarter. The Senate remained in Republican hands after the election and it can block a deal even after Joe Biden took office. Since US Federal Reserve Chairman Jerome Powell also sees the US economy on a solid recovery path, the Fed could refrain from buying new bonds for the time being in order to keep the economy on its toes. However, it has moved in a floor and will buy beyond 2021, which it is currently buying on the bond market.
The analysts at Société Générale have calculated that without the Fed’s bond purchases, known as quantitative easing (QE), the major indices would be quoted significantly lower than they are currently. Without QE, in their opinion, the Nasdaq would be closer to 5000 instead of 11,000 points and the market-wide S&P 500 would be closer to 1800 instead of 3300 points. But this is subjunctive. The fact is that newcomers to the stock market from Robinhood in the USA to the strongest of the new brokers in Europe, Etoro, are betting on rising stock prices and greedily take up IPOs like Airbnb.
The advantage for skeptics and cautious natures is that the volatility in the form of the fear barometer VDax-New for the Dax and VIX for the S&P 500 has finally fallen to a 10-month low. This means that the prices for warrants have also become cheaper. With put warrants, an inexpensive hedge can therefore be built in, for example with the WKN KA3R3F on the Dax. Every investor should have such a safety rope in their depot, with at least 1-2 percent of the depot.
Daniel Saurenz runs the stock exchange portal Feingold Research with his team. It offers a daily market letter that you can test free of charge for 14 days. Sign in at Info@feingold-research.com or try the stock exchange service under this link out. Training days and coachings can be found NEW under feingold-academy.com