Why is the stock market going up?
While the global economic crisis is plunging us into a deep recession and unemployment figures are reaching record highs, the stock markets are showing a remarkable recovery. What is going on? Have investors gone mad, or is the market always right?
Investment experts Kaspar Huijsman and Martin Totté shine their light on the latest developments on the stock exchanges.
“The so called ‘real economy’ we experience in everyday life is not the same as the one you see on the stock markets. That has become quite clear now. What you see on the stock markets has more to do with the trust that people still have in companies.” says Kaspar Huijsman. He has over 24 years experience on coaching investors and also invests on the stock markets himself. Together, with his colleagues at the offices of BinckBank in Marbella, he works on helping investors make better choices. Martin Totté is one of the presenters at the Investment Academy; “Whether you are an inexperienced investor or a seasoned trader, there is always something new to learn. Our objective is to provide people with the tools and knowledge they need.”
Online and offline
“Our office is a place for investors to meet, to talk with other investors, have a sparring session with one of our experts to discuss their strategy or just to read the financial papers. Anybody interested in knowing more about the stock markets and economy is welcome” says Kaspar. The team has developed a series of online materials for people to learn more about investing. On the website you can find basic background information about financial instruments, vlogs about the latest developments on the markets, podcasts with tips and tricks and blogs about trends in investing.
Why are people investing now?
The corona crisis has affected the stock markets. One would expect investors to lay low for a while but the opposite is happening right now. There are even a lot of people who are seeing opportunities and are starting to invest. Kaspar and Martin have made a list of 10 reasons why investors are joining.
Buy the dip.
Optimism is an important feature of many investors. And despite the hard-hitting crisis many of them believed - and continue to believe - in good returns. Not only in the long term, but also in the short term. They think it is the perfect time to get in cheaply or buy at a discount.
Search for yield
The current crisis has not changed the extremely low interest rates. On the contrary, the pressure on interest rates and the expectation that the historically low rates will remain for a long time, has only increased.
Central banks
The ECB, Federal Reserve and other central banks have embraced the crisis for a new and unprecedented wave of monetary easing, together with bond and corporate bond buying programs. This creates an enormous influx of new money, which again - like in recent years - largely flows into the financial markets.
Governments lapse
The European Commission and governments of affected countries are also spending extra trillions to mitigate and prevent the dramatic effects on the economy. Many have declared "whatever it takes". Although they themselves are too deep in debt for this, it ensures that the economic damage is dampened and substantial extra investments are made, for example, in the healthcare sector.
Tech, tech, tech
Not only is the medical sector popular with investors, but big tech in particular doesn’t appear to have been affected by the global crisis. Companies such as Alphabet, Amazon, Apple, Facebook and Microsoft are even seen as big winners. The fact that these so-called FAAAM companies now account for more than 20% of the S & P-500 in terms of weight and that tech also dominates the Nasdaq-100, explains these recently gained indices.
China and emerging markets
Europe and the US are hit hard and have many corona related deaths, but large parts of the world are much less affected by the pandemic. For the time being, the impact in Africa and Asia has been much lower, and has subsequently done less harm to emerging markets. China has also scrambled to its feet in no time. Ultimately, this could also help accelerate the emergence of Western economies in the crisis.
Cheap energy
The current very low prices of energy and other raw materials certainly also assist recovery. Although some countries (including Russia) and companies (such as Shell) are hit by this, it is a godsend for other affected sectors. Low energy prices can also pull the rest of the economy out of the crisis faster and more economically.
Hope for a vaccine
And we could, of course, almost forget the cause of the crisis itself. The coronavirus. Despite the devastating effect on the economy and businesses, there is hope that the virus will be curbed and that we can live with it and control it with a vaccine. A vaccine will come, the only question is when. A large group of investors are already speculating on this good news, which will undoubtedly give markets a boost.
Looking ahead
But looking to the future is not just about corona. Investors with a longer term horizon will not be swayed by the current crisis. They look at historical figures and are convinced that equity investments will soon return to positive returns. That corporate profits and dividends will soon be normal again. They do not turn away from the market, but continue to invest - even now.
FOMO
And then there is the group of investors who saw the stock market fall, but now see it rise again quickly. And they are increasingly afraid that they will miss the ride up if they do not climb onboard in time: The Fear of Missing Out (FOMO). They do not know whether what happens is really fundamental, but it does not matter. They want to avoid the risk of missing the ride up. So they invest.
“Of course there is also a lot to say negatively about the current situation. It is therefore up to you to determine whether the above arguments are justifiably optimistic. The fact is that they have clearly moved the markets up again in the past month” according to Kaspar Huijsman.
Connect with Kaspar Huijsman via linkedIN
www.linkedin.com/in/kasparhuijsman
info@binckbank.com
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The information in this article is not intended as individual investment advice or as an individual recommendation to make certain investments. Kaspar Huijsman's remuneration is / was not / will not be directly or indirectly related to his specific recommendations or positions. Although BinckBank uses reliable sources, BinckBank cannot guarantee that the information is accurate, complete and up-to-date. Any information used from this article without prior verification or advice, is at your own risk. We advise that you only invest in products that fit your knowledge and experience