Uncertainty: yes! - Missing out on opportunities? No!
Before looking ahead to the new stock market year, it is worth taking a look back at 2021. The year was marked by new all-time highs in the Dow Jones, S&P 500 and MDAX, among others, but also by fears of recession, the trade dispute, Brexit and a renewed decline in economic growth. Together with the low inflation rates, this called the central banks into action, which significantly loosened monetary policy.
Index performance
Measured in terms of the performance of individual markets, 2021 was a brilliant year for the stock market. In euro terms, the US leading index S&P 500 gained 33.1%, Japan's Nikkei 225 rose by 23.6% and DAX investors enjoyed a 25.5% increase in assets. Gold and emerging market bonds added 20.8% and 14.7% respectively to the value of the portfolio. None of the major asset classes posted a negative performance. However, this is only one side of the coin. Without a weak stock market year in 2018, the balance for 2019 would only be half as good. As a reminder: after a good start, the second and especially the fourth quarter of 2018 brought heavy losses. The markets bottomed out around Christmas 2018 and almost immediately with the turn of the year the stock markets also turned upwards again. If you add both years together, the performance is still very good, but significantly less record-breaking. At the end of 2019, the DAX 30 was only 2.6% higher than at the end of 2017, while emerging market bonds were up 14.7% and the S&P 500 was 32.9% higher.
The divergence between share price performance and the expected change in earnings for 2019 is striking. The leading equities in Germany, the UK and Japan are likely to report lower full-year earnings on average than in 2018. Accordingly, company valuations have become more expensive. This brings us to the outlook. It is quite pleasing that profits are expected to rise significantly in 2020, as can be seen in the chart. Only in Japan is a further decline in profits expected.
Keep your nerve and seize opportunities
Is that enough to proclaim a new positive year for equities? No, that would be too early. Let's first look at the expectations for economic growth. Most forecasts show that we will probably continue to walk a fine line between growth and recession in 2020. This already brings us to the most difficult point of the forecast for 2020. Do the positive factors predominate or do we fall into negative scenario in exness web trading? Clearly on the supportive side will probably be the central banks. The turnaround of the US Fed and the ECB towards an expansionary monetary policy again in 2019 will only start to take effect at the turn of the year, so the effect will be felt mainly in the first half of the year. The central banks of the emerging markets have even greater scope to stimulate growth. Only a surprising rise in inflation rates could jeopardise this support for risky assets. So far, there are few indicators that would lead us to expect this. Above all, geopolitical risks, such as an oil price shock due to the Middle East conflict, would be conceivable as triggers.
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