Frankfurt Investors will find it difficult to escape from their nervous wait-and-see position for the time being. On the one hand, positive quarterly reports from companies show that parts of the economy have recently recovered. In addition, purchasing managers’ indices indicate a relatively positive mood in European industry. On the other hand, the rapidly increasing numbers of new corona infections in Europe and the USA, the tussle over a new US economic stimulus program and the approaching presidential elections are putting a strain on the markets. In this quarter, strategists therefore expect share prices to continue to fluctuate massively. The stock experts are betting that the economy and stock markets will get a new boost in 2021 with a vaccine against the pandemic.
The prospects for the last quarter of this year are relatively bleak, says investment strategist Felix Herrmann from the world’s largest asset manager Blackrock. Above all, he points out that the most recent recovery phase “seems to be behind us.” In particular, the fear of a second forced economic standstill paralyzes investors and, on balance, has pushed the stock markets into the red last week. The German leading index Dax posted the weakest week in around a month with a loss of two percent, even if the index posted a daily gain on Friday after good company figures.
The lines of conflict surrounding the US presidential election campaign are particularly stressful. President Donald Trump’s opposition Democrats and Republicans continue to struggle to find a compromise on new economic aid. Almost no one believes that they will come to an agreement by the presidential election on November 3rd.
Trump and US Treasury Secretary Steven Mnuchin recently stressed that House spokeswoman Nancy Pelosi would have to compromise. Trump reiterated not to approve any further federal financial aid to US states and cities run by Democrats. He doesn’t think Pelosi wants to reach an agreement before next month’s presidential election. Some strategists in the US are now not expecting a major stimulus package before the first quarter.
Clear course setbacks are possible at any time
The approaching election day is also making investors nervous. “Investors have had enough of Trump, Brexit and other political risks for years,” says Christian Kahler, chief investment strategist at DZ Bank. “But given the unpredictability of the protagonists, a setback on the stock market is conceivable at any time,” he fears.
According to US strategists, investors are increasingly concerned that the race could end in a draw in the swing states – that is, in the US states that are not considered a safe bet for the Democrats or the Republicans. They often tip the scales and decide in favor of a candidate.
The Brexit continues to concern investors. Negotiations continue despite British threats of hard separation from the EU. “The British economy would find it difficult to cope with the double burden of a pandemic and no-deal Brexit,” warn the experts from US asset manager Brandywine.
DZ Bank strategist Kahler thinks that important indices such as the Dax or the broader S&P 500 can collapse by up to 18 percent in bad news. However, he does not think it is likely, especially since the reporting season for the third quarter is already showing better results than in the first half of the year. The supply of liquidity on the capital markets also remains abundant. The strategist sees that the Dax and the S&P 500 will remain roughly at the current level until the end of the year.
The end of the pandemic could raise hope
For the coming year, strategists will mainly draw hope from this that the corona pandemic could be overcome. Robert Greil, chief investment strategist at Merck Finck, is convinced that economic momentum will pick up again after a breather in the current quarter: “Despite the new corona wave, the global economy is in an early-cycle upswing, which will depend on further pandemics and vaccine Development will noticeably gain momentum again in 2021. ”
Kahler from DZ Bank sees it similarly: “If a vaccine is distributed across the board in the third or fourth quarter of 2021, the companies will report significantly increasing sales in 2021 and in the years thereafter,” he expects. In many cases, the companies’ costs would now be reduced, so that after the end of the pandemic, profits should rise disproportionately. “The new stock market cycle will then have a foundation for further rising prices,” says Kahler.
At least there was positive news about the fight against the pandemic towards the end of the week: The US drug agency FDA has now approved the drug Remdesivir for the treatment of Covid-19 diseases. In addition, the German company Curevac, listed on the Nasdaq, published positive preclinical data for a vaccine candidate.
A wealth of company figures and economic data is pending
In the new week there is an abundance of company figures on both sides of the Atlantic, and numerous important economic data will be published. Almost a dozen Dax companies announce their balance sheet figures. These include Deutsche Bank and Volkswagen. In the USA, the technology companies Amazon, Apple, Facebook, Microsoft and the Google parent Alphabet are opening their books.
On Monday, the Ifo Institute will publish the latest business sentiment in Germany with the business climate index. The restrictions that have been tightened again due to the pandemic should be reflected here, predicts Commerzbank analyst Christoph Weil.
In Germany, the October labor market report on Thursday and the retail sales in September and above all the first estimate of the gross domestic product for the third quarter on Friday are on the agenda. For the euro zone, figures on economic confidence for the current month will be published on Thursday – the ECB meeting will take place on the same day. On Friday, the euro zone unemployment rate in September, the inflation figures for October as well as figures on the economic performance of the entire euro zone from July to September close the week.
In the USA, incoming orders for durable goods and consumer confidence will be published on Tuesday, followed by figures on gross domestic product for September on Thursday. And the figures for industrial profits come from China on Tuesday and the official purchasing managers’ indices for October on Saturday.
With agency material.
More: What equity investors have to be prepared for by the end of the year.