The current year has clearly shown what stock market forecasts are worth: When in doubt, not very much. What did analysts prophesy for 2020? There was no pandemic that would lead to the deepest recession in decades. Hardly anyone expected that share prices would soar rapidly in one of the most drastic economic downturns of all time. So shouldn’t one dare to make any forecasts for next year, just passively wait to see what’s coming? No. Because burying your head in the sand is not a solution either. Five theses for 2021.
# 1 Interest rates stay low
It doesn’t take much chutzpah to predict that policy rates will remain low in the coming year. It was only in December that the European Central Bank (ECB) increased its bond purchases by a further 500 billion euros. The eurozone countries are meanwhile with such high sums in the chalk with the ECB and other bond buyers that many of them would simply collapse at higher interest rates. Since nobody wants that, interest rates will probably remain at a level that makes it easier for states to service their debts. Even a higher inflation rate is unlikely to change that. The ECB is currently far from its inflation target of just under two percent anyway. In addition, as the US Federal Reserve has announced, it could temporarily accept an overshooting of inflation.
# 2 The stock markets are still looking up …
Investors are currently pricing in that the pandemic will come to an end in the coming year, thanks to the new vaccines. They expect a strong economic recovery and rising corporate profits. In fact, the chances are good that 2021 will not be as disastrous as 2020. Admittedly, further waves of infections with new lockdowns threaten herd immunity. But that didn’t bother investors at the end of this year: The share prices recently rose in step with the number of infections. This shows once again that it is not the status quo that counts on the stock exchange, but that expectations are traded.
# 3 … but with a slowed-down momentum
When the pandemic is over, the economy will in all likelihood recover rapidly – and stock prices will soar even steeper? Probably not: A large part of the expected recovery has already been priced in in the valuations. It is more likely that the upward trend will continue less rapidly and more steadily in the coming year. However, this thesis stands on shaky legs. After all, things turned out completely differently than expected in 2020.
# 4 The price of gold does what it wants
If you read forecasts on the development of the gold price, you know afterwards: The price of the precious metal will either fall or rise in the coming year, but it may also move sideways. Ultimately, considerations about the gold price are always a bit pointless, because nobody really knows which factors play a particularly important role in its development: interest rates, inflation, or rather the risk mode on the stock markets? The low interest rates and bond yields suggest that the gold price will continue to rise in the coming year. The risk appetite among equity investors speaks against it. In any case, conservative investors should not succumb to the temptation to invest a large part of their capital in a commodity with such erratic price developments.
# 5 Corona remains the number one topic
At the beginning of 2020, nobody could have imagined that a small virus would soon keep the whole world in suspense. At the end of the year, nobody can imagine that there will soon be a life without Corona again. In fact, the virus is likely to be the top topic on the markets in the coming year as well: In which countries is the economy recovering particularly quickly, where not yet, which industries can take a deep breath, where are there still restrictions? However, this thesis should also be treated with caution. After all, the coronavirus has often behaved differently from what was expected of it.
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