Stock market this week
Latest update: 17-01-2021 15:09
The lockdowns will determine the week
The year got off to an excellent start for almost all stock markets. But after that euphoria of the first week, it already started to quack the second week. There were many causes.
Unrest in US politics, sharply rising number of unemployed in the US, disappointing retail sales in the US and rising yields in the US. Indeed all in the US.
But what is happening in the US as well as in Europe and to a lesser extent in Asia is the situation around corona. Despite the fact that in a number of countries (including the Netherlands and Belgium) the numbers go down, the numbers remain too high or are increasing in other countries.
The faster-spreading British variant creates additional uncertainty. Reason for governments to extend or increase lockdowns.
That and not knowing how things will go with those corona mutations was the main reason last week that stock markets had a hard time. Some interest rate hike fears also crept into the market. Unnecessary and below I explain why.
Interest and inflation
Inflation has traditionally been an important economic figure. However, inflation has remained very low since the previous crisis in 2008. The risk of interest rate hikes was therefore almost non-existent.
There is now the expectation (I have it too) that inflation will increase considerably this year. All kinds of higher interest rate scenarios are therefore already haunting. Reason to take a closer look at that inflation.
Inflation and interest is not a chicken or egg story. Only when inflation has risen too fast will it be pushed down with rate hikes.
Higher inflation therefore comes first and only much later do interest rate hikes follow. Fear of interest rate hikes while inflation has not yet risen is therefore unjustified.
Then the number. The FED and ECB aim for an inflation rate of just under 2%. That 2% is therefore neutral. Inflation is currently lower than 2% and we are therefore dealing with (too) low inflation.
And what is high inflation? In 2015, Russia had an inflation rate of around 15%. But we also have periods of high inflation in other countries. In the early 1980s in the wake of the oil crisis, US inflation was around 15% for years.
Also in the Netherlands (still with that hard Gulden) we have known many periods with an inflation of between 5 and 10%. Not to mention Italy in the Lira period.
Experience shows that central banks regard inflation above 10% as so undesirable that they only then intervene vigorously with aggressive interest rate hikes.
What is Aggressive? That is when one sets interest rates higher or nearly as high as inflation. As long as central banks do not consider increasing inflation to be a major problem, interest rates will lag behind inflation. The interest is then always lower than the inflation.
As long as that is, saving makes no sense and savers will spend or invest their money. At the moment we are still in the phase where inflation is below 2% and is therefore too low. So it makes no sense to worry about interest rate hikes now.
The next phase is that inflation will rise above 2%. That is no problem either. The FED has already indicated that, given the low inflation of the past few years, they have no problem with an inflation above 2%.
The next phase will be with which level the FED does have problems. I think that you should not so much look at an inflation number, but more at a period.
As long as the US economy still has to recover from the corona crisis (will take years), interest rate hikes are undesirable and cannot and will not happen. In addition, higher inflation is also badly needed to allow that much too high debt mountain to evaporate.
That will not work with an inflation rate of 2.5% for a year. Inflation of between 3 and 5% for at least 5 years or a few years with well above 5% and those debts become manageable again.
I do not expect significant interest rate hikes until many years from now, or when inflation rises above 10%. What will benefit from higher inflation?
When saving no longer makes sense, more money will go to the stock markets. House prices will rise. However, the largest increases can be expected in gold and silver. Rising or high inflation is always the biggest force behind a gold and silver bull market.
The gold and silver price
Things didn't go well last week with gold, silver and mining stocks. That was also the case a year ago. Even then a faltering start to the year. But as we know that later all turned out well.
It remains to be seen whether Biden can get his $ 1,900 billion aid plan pushed through. What I'm also looking forward to is next week's FED meeting. Only then do we know better where we stand with gold and silver.
With the mining shares, this will be a different year than 2020. These mining companies will make much higher profits this year due to the higher gold and silver price. Last year, this was not fully realized.
It had 2 causes. Gold and silver were not high all year long last year. The second reason is that many mines had to close temporarily in the first half of the year due to corona. Now and especially after the vaccination little chance of mine closures.
This uncertainty of mine closures will no longer exist due to the vaccination in a number of months. So higher annual production at also much higher prices. Then profits will increase rapidly.
That more money in cash will ensure that we will see many company takeovers this year. Mining companies that will take over successful seekers with areas with a lot of gold and / or silver found.
That those mining companies will have more money is just one reason. Thanks to modern techniques, mines can now be emptied within 5 to 10 years. A large mining company therefore needs a constant supply of new areas where a mine can be started.
Due to the low gold and silver price from 2012 to 2019, gold and silver were searched for at a slow pace during that period. There are not many seekers with much found gold and silver.
Once that buying wave gets underway and I expect that before the summer, the shares of all seekers with some potential will rise very rapidly.
Despite the disappointment last week, I remain very positive in terms of mining stocks and seekers for the rest of the year. Due to inflation a higher gold and silver price. That will lead to higher prices for mining shares.
Due to takeovers, the prices of seekers will rise sharply. Last week's low prices therefore provide wonderful buying opportunities.
The weekly forecast for the stock markets
A busy week that starts with US stock exchanges closed on Monday due to Martin Luther King Day. This week the earnings season is starting. For companies that come up with figures, I expect big price results, both up and down.
However, that will not cause stock markets to choose direction. On Wednesday the Americans will get their new president. Biden has already indicated to come up with many corona measures.
We get the ECB on Thursday. I don't expect much action. Unlike the FED, the ECB always has a more wait-and-see attitude. The ECB will first want to have more insight into the end of the lockdowns before stimulating the economy.
How the ECB currently estimates the economic damage is important. What I am going to pay attention to is whether Christine Lagarde is going to talk the euro down. However, she will never talk much about the euro itself.
If she comes up with comments that make the euro fall (and the dollar rise), that is important. Because next week we get the FED. A lower euro and higher dollar gives the FED more room to come up with a large stimulus package.
I expect the lockdowns on the stock markets to claim the biggest role this week. Increases and extensions of lockdowns in combination with corona variants, so that no one knows when those lockdowns can be scaled down again.
It causes economic damage and a lot of uncertainty. Stock markets will suffer a lot from this.
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The weekly forecast for the AEX
With the AEX well above the support at 630, there seems to be no problem. The euphoria and good intentions rally of the first week, however, had already passed last week.
Then the question is was last week a pause or tipping point. I expect the latter. Sentiment is deteriorating and a decline will follow. As long as the AEX remains above 630, there is not much going on yet. Below 630 and the decline will accelerate.
My expectation remains. At the beginning of this year due to corona setbacks (lockdowns) and even before the summer as corona due to vaccines, more people with antibodies and the better weather has been beaten (no more lockdowns needed) the AEX to 700.