Dusseldorf Ahead of today’s Fed meeting, investors are cautious. Apparently the fear of making losses on new purchases is greater than the greed for quick gains.
The price gains at the start of trading do not change this either. The Dax was trading at 15,508 points at noon, an increase of 0.3 percent. The German benchmark index ended yesterday Tuesday with a minus of 1.1 percent and a final figure of 15,453 digits.
The technical picture has thus deteriorated somewhat, which is to be understood as the first warning sign. The stock market barometer closed on Tuesday just below the 200-day line, which is mainly observed by long-term investors. This line currently runs at 15,475 index counters.
The decisive date on this Wednesday will only take place after the market closes. The US Federal Reserve announced the results of its two-day interest rate meeting. From an investor’s point of view, it is important how quickly the Fed reduces its bond purchases (technical term: tapering) – and how many rate hikes are foreseen. After Fed Chairman Jerome Powell’s speech, do experts expect two or three rate hikes in the coming year?
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Instead of June 2022, “turbo tapering” could put an end to buying bonds and mortgage-backed securities in April or March of next year. In the opinion of Jochen Stanzl from the online broker CMC Markets, this will lower the threshold for the “Fed Put” on the stock markets. The term describes the suspicion that the Fed is repeatedly reacting in a targeted manner to weak phases on the stock market and thus supporting prices. The term “put” has become common because puts are forward transactions that investors can use to hedge the price of their securities downwards.
The futures contracts at the “Federal Funds Rate” on the Chicago futures exchange CME provide a good indication of this. The probability is 60 percent that the first interest rate hike will take place on May 4th. The chances of a second increase in July are 50 to 50.
“Should there be a stronger correction on the stock market, the Fed’s room for maneuver would be limited by inflation,” says the chief analyst. “The time when investors could let off steam in a ‘Goldilocks’ scenario of expansionary monetary policy in Reddit stocks such as Gamestop or AMC without paying attention to the fundamentals seems to be slowly but surely ending.”
Heavyweights dominate the S&P 500
There is currently an unhealthy development on the US stock exchanges. A handful of highly capitalized and correspondingly highly weighted stocks hold indices like the S&P 500 close to record highs, while many speculative stocks are in a correction or even a bear market because they have already slipped more than 20 percent.
According to Tobias Krieg from Lynx Broker, the US market is now completely dependent on a small number of heavyweights. “The five largest companies in the S&P 500 represent 26 percent of the market capitalization, the ten largest for 34 percent,” he has calculated. If the few heavyweights that hold the market together should tip over, things could get uncomfortable. This means stocks like Apple, Microsoft, Amazon and the Google parent company Alphabet.
Apple is currently trading a good four percent below the record high from the beginning of the week. Compared to other tech stocks, the iPhone group is holding up extremely well in a demanding market environment. Names from the software sector were particularly hard hit on Tuesday. Adobe and Salesforce lost around seven and four percent, respectively.
Microsoft was also 3.3 percent weaker from trading on Tuesday. So far, according to evaluations by the “Neue Zürcher Zeitung”, the industry leader has only lost more than three percent on two days this year. On Tuesday yesterday and September 29 – a few days after the Fed announced that it would take tapering seriously.
The more speculative values have already slipped significantly. Netflix, for example, has lost around 15 percent since its record high in mid-November. The hyped chip manufacturer Nvidia fell into a bear market for a short time with a minus of more than 20 percent. Tesla is 23 percent below the record high set in early November.
Are there only capital controls left for Turkey as a way out?
The four foreign exchange interventions by the Turkish central bank since the beginning of December have so far not only been useless, but have achieved the opposite. The lira keeps falling. Last Monday, the central bankers on the Bosphorus managed to push the dollar down to 13.97 lira in the meantime with their third intervention within a short period of time.
But today, Wednesday, the dollar climbed again to a new record high, which is now at 14.7190 lira. The Turkish exchange rate has thus almost halved against the greenback. In the past four weeks alone, this value has been minus 45 percent. A similar picture emerges for the euro, which has also reached a new record at 16.5957 lira.
For the always well-informed foreign exchange analysts at Commerzbank, these interventions are “worse than useless”. After all, it is now clear to everyone that the central bank has squandered part of its meager foreign exchange reserves with no effect whatsoever and that the reserves are therefore even smaller than they were before. This makes it even more difficult to impress the market with new interventions.
In addition, President Recep Tayyip Erdogan has built the usual sustainable ways to stabilize the lira. He has made a commitment not to return to a stability-oriented interest rate policy and does not want any support from the International Monetary Fund. And even if Erdogan allowed short-term rate hikes again, as it did in 2018, they are unlikely to be of much help due to a lack of credibility.
For Commerzbank analyst Ulrich Leuchtmann, there is only one way out: “I hope it is only because of my lack of imagination that I cannot think of any more scenarios apart from more or less drastic capital controls.”
Look at the individual values
Overall, the fluctuations in the individual values are rather small. Infineon recovered by 1.3 percent after the investment bank Kepler Cheuvreux had filled the technology area of its German recommendation list with the papers of the semiconductor company. Papers from Daimler Truck, the commercial vehicle business that was split off from the Daimler Group on Friday, came back a little further. Starting at 28 euros, the day before they ran up to 35.105 euros before profit-taking began and the price slipped to 32.20 euros, a decline of 2.1 percent.
Deutsche Telekom: CEO Timotheus Höttges should lead the company at least until the end of 2026. At the meeting of the supervisory board on Wednesday, the board is to resolve a contract extension for a further five years, the Handelsblatt learned. But the share shows hardly any reaction and is 0.6 percent in the red.
HM: The second largest fashion retailer behind the Zara parent company Inditex has grown despite ongoing corona restrictions. “Despite ongoing restrictions and the negative consequences of the pandemic, sales of the H&M Group in local currencies were back at the level of the fourth quarter of 2019,” it said. Nevertheless, the share on the German stock market is down 5.8 percent.
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