The last financial market in a turbulent year lets you review the events of the past 12 months. In addition, we dare to take a look at the year 2021 and at possible further developments on the global financial markets. We wish you a pleasant read.
We all probably had different plans for 2020. And yet it turned out completely different. It hadn’t looked so bad at the beginning of the year. There was an initial agreement in the trade dispute between the US and China, which resulted in the so-called Phase 1 agreement. The World Economic Forum in Davos recognized the signs of the times and addressed climate change as a key issue. But as early as February, reports of a lung disease in China were being discussed more and more frequently in the financial markets. However, the evaluators of the situation agreed that China acted much more consistently than with the SARS epidemic in 2002 and that the spread of the disease could thus be stopped with a high degree of probability. How wrong you should be in this assessment. However, Covid-19 has not yet completely dominated reporting. First of all, there was an event of great historical significance. On January 31, 2020, the United Kingdom was the first member state to leave the EU. After 16 years of continual EU enlargement, now the abrupt “western downsizing” – a paradigm shift. Nevertheless, the German leading index DAX marked a new all-time high on February 17, 2020 at 13,795.24 points. However, carelessness quickly turned into panic. With the arrival of the corona virus in Italy and the emergence of further cases outside of China, investors lost their courage. There were crash-like sales, which caused the German price barometer to collapse to 8255 points or 40 percent. Two of the five most negative daily moves in the US stock market over the past 100 years occurred during March. As a result, the central banks and governments around the world began support measures on an unprecedented scale. Not only the support measures set records. The price movements following the crash were also record breaking. Among other things, the American Dow Jones index rose by 11.4 percent in one day, as fast as it was last in 1933. In connection with the first wave of shutdowns, the US unemployment figures shot from a record low to a record high. Fortunately, the unemployment rate in Germany could be better buffered through the instrument of short-time work. As early as April, the US, in cooperation between the central bank and the government, put together aid packages worth more than 4 trillion US dollars or 30 percent of the US gross national product. The number of visitors to the important US retail sector fell by half, the situation was similar with public transport and the way to work was only just under 60 percent. This significant decline in mobility led to a collapse in demand for oil products such as gasoline. The collapse in demand for oil and at the same time overflowing stocks led to another unique event in world history: For example, a barrel of American WTI crude oil was temporarily quoted at a negative price. So if you bought one, you even received 40 US dollars for it. The summer months were then characterized by a gradual normalization of social life. China’s economy was particularly strong and was able to quickly build on the pre-Corona successes. The economies of Europe and America, however, continued to groan under the Covid consequences. Thanks to the massive liquidity made available by governments and central banks, the equity markets were strong in the summer months. Even the corona situation, which worsened again in winter, was hardly impressed and once again proved that they are not pricing the present, but the future in the share prices. In the midst of the recent catastrophic increase in the number of corona cases and the associated lockdowns, the world’s leading stock exchanges are already trading at their all-time highs.
In the future, cheese will be bought with the mouse (Hary Raithofer – Austrian moderator)
But let’s take a look at the year 2021. The vaccinations have started. At the same time, the countries will struggle with record high numbers of infections, to which they can increasingly only respond with tightened restrictions on freedom of movement if they do not want to risk the collapse of their health systems. It also means that governments have to keep investing money to get their economies through the crisis. The central banks will also continue to pursue an easy money policy. This week, the European Central Bank, the ECB, announced an expansion and extension of its bond purchase programs. The US Federal Reserve also signaled its continued willingness to use the full range of its instruments to support the economy on Wednesday. This means that the yields of both government bonds and corporate bonds will remain extremely low or negative in 2021. Real values, such as stocks or real estate, will continue to absorb significant parts of the liquidity in the market and increase in value. With the prospect of overcoming the corona crisis through widespread vaccinations, the main losers of the lockdowns will initially be able to record price gains on the stock markets. In the long term, however, those companies will prevail that are among the leaders of the disruptive change towards online trading (and certainly also for cheese) and technology. Due to the low base values with which the profit expectations for 2021 are compared, the companies should be able to visually show very high profit growth rates and thus entice investors to make further investments. Only later in the year do we consider a discussion about the exit from bond purchases by the central banks, particularly in the USA, to be possible, which could then stall the bull market in real values.
Man always strives for what he does not have
Many investors make the same mistake over and over again with their investments. You run after stocks that have already risen sharply, with the feeling that you just don’t want to miss anything. You too, dear readers, have probably complained at one point or another in the past about the stress of the Christmas season with buying gifts and the never-ending Christmas dinners and visits. What does this statement have to do with the previous sentence, you will ask yourself. Well a lot. Because if we listen inside, we feel a clear unease that the stress of the holidays is now denied to us due to the contact restrictions due to the corona pandemic. Man always strives for what he does not have. This is how it is both on the stock exchange and in everyday life. But just as long-term success on the stock market can only be achieved through disciplined circumnavigation of such psychological traps and thus sleep much more calmly than with constant buying and selling decisions, a little serenity may also help us through the Christmas season with limited contacts ahead. Let’s just pretend we can throw ourselves into the stress of shopping and the many visits and then enjoy the fact that this time we have escaped the hustle and bustle. This is probably the best thing for all of our corona afflicted souls. With this in mind, we wish you a Merry Christmas and the serenity to be able to enjoy the holidays that lie ahead of us at least a little despite the pandemic. Thank you very much for your loyalty. Stay healthy!
Livestream on December 14th, 2020 from 6 p.m .:
With Hans-Werner Sinn, former President of the Ifo Institute: Corona and the miraculous increase in money in Europe
– Here is the stream! –