DAX outlook: mood barometer cloudy outlook

Frankfurt In the past weeks there have been repeated attempts to recover the course, on some days one could believe that the corona pandemic has already been overcome. But on Friday, disillusionment returned – the collapsed ifo business climate index made the whole dilemma clear.

The course of the mood barometer looks like a “Highway to Hell”, was the analysis of the VP Bank. The index is now significantly below the values ​​of the crisis year 2009. The simple message for the future was: “Massive income losses are imminent. We will all get poorer. This applies not only to Germany, but to all economies. ”Sometimes it is better to hear the unvarnished truth.

Other analysts and experts are also skeptical about the weekly outlook. Cautious savings by consumers and companies create a completely different economic and inflation environment than one knows from the post-war period, the analysts at MFS Investment Management believe.

They expect the earnings recovery to be weaker than the market and point to the possible dilution of earnings through capital increases. They particularly highlight 2008 as a comparison.

“When the extreme risk of the international financial crisis subsided, companies were no longer concerned with distributions, but with recapitalization. To this end, new shares were issued – at the expense of existing shareholders, whose capital was heavily diluted, ”said the investment professionals. The new wave of recapitalization has probably just started. In the past few weeks, leisure companies and service providers in the United States and Europe have already offered new shares.

Warning to bargain hunters

The BLI – Banque de Luxembourg Investments is also cautious. “The financial markets are currently giving the impression that they are underestimating the extent of the economic damage and are counting on a rapid recovery as soon as the containment measures are reversed,” is the BLI’s assessment.

Many investors are conditioned to view any decline as an opportunity to buy. However, the analysts recall that while the fall in share prices in February / March was dramatic, the valuations were also very high. As a result, the markets today are anything but cheap, especially after the recent price recovery.

Quality companies with a very solid balance sheet, one or more sustainable competitive advantages and the ability to self-finance should be preferred. The main factor that will continue to speak for stocks remains the low interest rate level and thus the lack of alternatives. At the same time, gold will become an “indispensable part of a balanced portfolio because of the inflation risks.”

After the significant recovery since mid-March, the European stock market has recently lost some momentum, the Weberbank experts believe. In addition, the balance sheet season that is already underway shows significant impacts on corporate balance sheets due to the global “lockdowns”.

Correspondingly, the analysts have also significantly lowered their profit expectations for industrial companies, but also for the banking and energy sectors. Due to the economic slump, banks faced increased write-downs on their credit books and the massive drop in yields clouded interest income. Most recently, they also negatively impacted the rating agency Standard & Poor’s (S&P).

The Deutsche Bank and the Commerzbank were therefore particularly under pressure on Friday “We continue to distance ourselves from these sectors and prefer creditworthy pharmaceuticals or companies from the non-cyclical consumption. In addition, titles from the technology sector are promising in our eyes, ”said the Weberbank experts.

Central banks meet worldwide

If the economic situation continues to be poor, the states and central banks will have to take further support measures. Robert Greil, chief strategist at Merck Finck Privatbankiers, sees an opportunity for this next week because the European Central Bank, the US Federal Reserve and the Bank of Japan are meeting.

“As a result of the unprecedented economic downturn caused by the Covid 19 consequences, all central banks will reaffirm their willingness to support,” says Greil. The economic downturn left neither governments nor central banks a choice but to take further measures to support and recover the economy.

The gross domestic product for the first quarter of 2020 will be published in the euro area on Thursday, and new growth figures will come in the US on Wednesday. Further important economic data in Germany are the preliminary inflation figures and the labor market report for April.

According to DZ Bank, the next quarter should bring an improvement in the economy, but there does not have to be a “V” or “I” recovery. This is not ignored on the stock market, many stocks are up to 80 percent down.

A large number of “mega-caps” hold up against this, mainly in the USA. Amazon, Google, Microsoft, Netflix and Facebook, but also Adobe or Comcast, be stable on the way. Things are also going well for the great values ​​of the “old economy”, including Pepsico, Johnson & Johnson, Procter & Gamble, Home depot and Pfizer. The German Leading index Dax the strategists from DZ Bank see 11,200 points by the end of the year, and the S & P-500 for US equities at 2,800. This would at least stabilize in the medium term.

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DAX outlook: Exchange experts expect further price falls

By agreeing with Opec-plus, the global oil industry, economies, and other oil-dependent industries could avoid a very deep crisis, said Daniel Yergin of information service provider IHS Markit. “It prevents stockpiling, which takes pressure off prices when normalcy returns – whenever that will be.”

The wide-ranging restrictions on public life in many countries are having an impact on the economy, and the oil price has dropped 50-60 percent this year. “We do not expect a sustained recovery in the oil price until tense demand is eased again in the third quarter,” said Harry Tchilinguirian of BNP Paribas. These are not good signs for the German stock index (Dax), which will start trading again on Tuesday.

Last week’s market developments seemed to be fueled by the hope that the worst of the corona crisis would soon be behind us. Won on weekly view the Dax almost eleven percent, which is the most since November 2008 – on Thursday alone it was 2.2 percent. However, optimism cannot be determined from the economic indicators.

The latest bad news in short: The mood of the US consumer continues to collapse in view of the virus. The consumer confidence barometer in April fell to 71 points from 89.1 points in March, the University of Michigan said Thursday. This is the lowest level since December 2011. At the same time, the level of initial jobless claims in the US remains awesome, at 6.6 million a week through April 4.

Federal Reserve steers against the crisis

Federal Reserve chief Jerome Powell even warns that the US economy will sink into mass unemployment. For Thomas Gitzel, chief economist of the VP Banken Group, it is clear: “The decline in social product in the second quarter will break negative records.” Economists understand social product as the goods and services produced in an economy.

However, like all other central banks around the world, the US Federal Reserve is doing everything it can to at least mitigate the consequences of the slump. With additional emergency aid of over $ 2.3 trillion, the Fed wants to support the small and medium-sized companies in the United States that have been hit hard by the crisis.

The states are also generous in Europe. With aid programs worth more than 1.5 trillion euros, they are fighting the effects of the corona crisis on the economy. In order to finance the debts raised, “states will try to keep interest rates extremely low for years to come,” says Daniel Kerbach, chief investor at Merck Finck.

So far, the stock markets have shown behavior typical of bear markets. A deep fall was followed by a clear countermovement. “But as we know from historical crises, the phase of initially disoriented fluctuations in the capital markets can drag on over a long period of time,” says Daniel Schär from Weberbank. In the financial crisis, violent price drops and strong countermovements had alternated for half a year in close succession.

The market low was only reached after five months. Therefore, the market expert is only assuming an intermediate step in the current recovery of the stock markets. In the past, the phases were twelve to 60 months. It took so long to overcome such a serious crisis.

Profits could plunge 50 percent

The effects can also be seen in the yields. “This year, corporate earnings in the German Dax share index could plunge 50 percent and more, more than in previous recessions, when earnings fell by an average of 35 percent,” feared Christian Kahler, chief strategist at DZ Bank. After previous recessions, the price peak in the Dax was only reached again after four years.

Corporate earnings would have recovered faster. In DZ Bank’s view, this means that the companies in the Dax would earn as much in 2022/23 as they did in the record year of 2018. “The index itself would not reach its old high of 13,800 points until 2024,” judges Bald.

The number of corporations that cut, cut or postpone dividends due to the crisis is increasing every day. “Especially in the Dax, this will leave its mark, since in addition to subscription rights, dividend payments are also included in the price,” says Ulrich Stephan, chief investment strategist for private and corporate customers at German bank. According to him, exchange-traded futures contracts on the dividends of the Euro Stoxx 50 index indicate that the market does not expect a rapid recovery in payments, even for the largest European companies.

Derivatives on dividends, which will not be paid until 2022, have also fallen by 47 percent at the top. In the current year, a 25 to 30 percent drop in distributions in the Dax is expected.

Look into the next week

For Robert Greil, chief strategist at Merck Finck, what will probably be the most noticeable economic news in the coming week will be the number of new US jobless claims on Thursday reported for the week ending April 11. In America, retail sales and industrial production are also due in March next Wednesday. The Fed’s “Beige Book” also gives an impression of the state of the US economy.

There is little important economic data in Europe. This includes the result of industrial production for the euro area in February on Thursday. However, the corona pandemic is not expected to have a significant impact until March.

Things are getting more exciting in China. On Friday, the gross domestic product is due in the first quarter, which has been badly affected by the corona virus. In addition, industry figures for March will be published, which will provide information on the pace of normalization in the Middle Kingdom.

Despite all the existing uncertainty, Christian Kahler from DZ Bank judges: “Anyone who buys shares during the coming quarters should achieve good long-term investment results.”

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