The stock markets are in a downward movement.
(Photo: Bloomberg/Getty Images)
A few days gently upwards, before it then falls sharply. This is exactly what characterizes a bear market, i.e. a longer-term downward movement on the stock exchanges. There is much to suggest that this painful process is not yet over.
In the meantime, everyone is probably asking themselves the question of whether the many crises are now well known and should therefore no longer trigger price declines. So whether the skeptics have not long since sold their shares.
In that case, the market would be “cleansed” and ready for a new upward movement. Not even new and bad news could harm the prices in such a scenario.
In March 2003, for example, after a three-year slump, prices rose, although the Iraq war that had just begun had the world in shock, Germany, along with other industrialized countries, slipped into recession and many companies were posting losses. But prices rose because those who wanted to sell had sold. The brave few who bet on a better future ensured the upward trend.
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But we are probably not that far in September 2022. The risks remain greater than the opportunities as long as the recession in Europe and in many other developed countries is expected but still not a reality.
The downside risks are also higher because the consequences of an imminent gas shortage as a result of the Russian war of aggression in Ukraine are not foreseeable.
After all, the price risks are greater because nobody knows how often and how much the central banks will raise interest rates in order to get the rapidly rising inflation under control – even at the expense of a recession. Higher interest rates make loans more expensive for companies and consumers, and therefore reduce profits and investments – and are therefore poison for the stock markets and the ailing economy.
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In difficult times like this, the advice is: keep cash on hand and access it little by little when prices are falling. Either with stocks that have been on the wish list for a long time, but have risen too much in price and were too expensive. Or with entire stock market indices in the form of ETFs, in order to bet on German, European, Asian, American companies or even on the whole world.
A lot speaks for US stocks. In the largest economy, there are more viable companies in hot industries like technology. Europe, on the other hand, is closer to the war.
However, on the domestic continent, and particularly in Germany, the valuation discount versus US equities has reached historically high levels. The shares are therefore much cheaper.
Therefore, no one should be surprised if the Dax and Euro Stoxx 50 temporarily rise more strongly in the beginning of a recovery and after the end of the war – we are still a long way from both. Such catch-up effects are just as much part of the basics of the stock market as the certainty that a bear market has always been followed by a new bull market.
More: US corporations are leaving Europe behind in more and more sectors.