Many people can hardly believe their eyes when they look at the share prices at the end of the year: the stock exchanges in the USA are at record levels, and in Germany the Dax also rose to its all-time high at the beginning of this week. And that in the Corona year 2020, in which the economy worldwide came to a standstill twice.
Puzzling exchange. Never before in history have socio-economic reality and events on the financial markets diverged so widely. A closer look at things, however, shows that the development is not that irrational. There are many indications that things will continue just as well in the new year – and some that this phase could last even longer.
About the amazing old year: Ulrich Kater, chief economist at Deka Bank, sees two main reasons why the stock exchanges have weathered the corona crisis so well. “On the one hand, it became clear very quickly that the pandemic was a temporary shock, similar to a natural disaster,” he says. The current second wave does not change that. There is light at the end of the tunnel, especially with the prospect of a vaccine. That is the big difference to the 2008/09 financial crisis, for example, when you didn’t know how badly banks and the financial system are infected and whether, figuratively speaking, there will be a vaccine against it.
The second reason is the rapid response from central banks and states, which have pumped trillions of money and credit into the economy around the world and saved so many companies from falling. “That’s why the notorious second-round effects did not materialize,” says Kater. He is referring to the fatal downward spiral that developed, for example, during the Great Depression in the 1930s: companies lay off their employees en masse who limit consumption out of fear, which is why companies have to lay off even more employees. And companies go bankrupt, which is why banks are afraid to cancel many loans, whereupon even more companies go bankrupt. All of this failed to materialize after the shock in March. And that’s why the stock markets recovered quickly.
The upswing in stocks like Delivery Hero, Amazon and Netflix more than made up for losses in other areas
The upswing was mainly driven by technology stocks. “The Corona crisis catapulted the use of new technologies by at least five years into the future,” says Kater. Whether delivery services, online mailers, streaming portals, video conferencing providers, cloud companies or social media – they all boomed at the time when public life was being shut down. The upswing in stocks such as Delivery Hero, Amazon, Netflix, Zoom, Salesforce and Facebook more than made up for the losses in the aviation and tourism industries.
Since Biontech and Pfizer announced on November 9th that their corona vaccine was about to be approved, share prices have risen again. Now there is hope that large parts of the population can be immunized against the coronavirus in the course of the new year. This helps those industries that are particularly hard hit by the lockdown. This broadens the basis for the upswing on the stock market. “The good news from research is balm for the soul – and for the investors,” says investment strategist Christian Nemeth from Zürcher Kantonalbank Austria.
In addition, one of the main reasons for the booming stock markets will remain intact in 2021: the low interest rates and the glut of money. Experts assume that there will be no turnaround in monetary policy before 2023. Above all, Kater expects the bottom line with a positive year on the stock market in 2021.
But there are also risks that threaten the stock market boom in 2021
The fact that skeptics can hardly be found on the floor at the moment could also be a warning signal. “To put it casually, the greatest danger on the capital markets is currently that investors will trip themselves out of sheer optimism,” says Ali Masarwah from the Morningstar rating agency. A survey by Deutsche Bank among investors shows that there are definitely risks that threaten the stock market boom in 2021. The mutation of the virus in the UK, which became known on December 19, made that clear. The vaccines could also have side effects.
But the bottom line is that optimism prevails. Some economists even see an exceptionally good decade approaching. One of them is the US financial market researcher Ed Yardeni. He writes a newsletter that is required reading on Wall Street and foresees a golden decade in the 2020s that no one should fear. I beg your pardon?
If you want to understand Yardeni, you have to follow its long historical arc into the past century. In those confused years in which the end of the First World War was followed by the start of the Spanish flu, which swept across the war-torn globe in three waves. And yet, according to Yardeni, the Roaring Twenties, of all things, followed economically on the ashes of war and millions of virus deaths: automobiles replaced horse-drawn carriages, electricity lines suddenly lit up gloomy rooms. And contemporaries were amazed when the strange voices from the radios became more and more socially acceptable. “At the beginning of that decade, nobody could have imagined the technology-driven revolution of the Roaring Twenties,” says Yardeni.
The experts expect major advances in some technologies in the coming years
Well, argues the capital market expert, history could repeat itself, at least a little. The corona vaccines ushered in a golden age of biotechnology. Great progress can also be expected in robotics, artificial intelligence, nanotechnology and with the 5G cellular standard. Or with blockchain, with 3-D printing and electric cars. Yardeni’s list is long and his optimism about the stock market is great.
Other experts, however, paint a contrary picture of the long lines on the capital market. For ten to 15 years, the investment company JP Morgan Asset Management sees equity returns depressed in the decade after the pandemic, and expects only 4.1 percent returns per year in the otherwise rapidly storming US market, and declining returns in Europe as well. Possible waves of bankruptcy, economic crises, growing economic nationalism – investors don’t have to look long for reasons for stock market pessimism.
Most investors, however, are currently not being deterred by such risks and are investing a particularly large amount of money in the losers of the Corona crisis: in tourism stocks, car stocks and industrial stocks. Many even see them as the winning stocks of the future, because these stocks could still have catch-up potential in terms of vaccine success.
At the same time, however, an upswing in the old economy could also act as a brake on the price of the Internet giants on the floor. Many experts speculate that their triumph could be slower, at least for some time. In the long term, however, that much is certain, the biggest economic crisis since 1929 will give innovative technologies a boost.
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