Stock market forecast July 2020
Latest update: 04-07-2020 00:43
The hard numbers
My expectation was that stock markets would decline. I was not proven right. Investors who expected that stock markets would rise in June were also not right.
Despite little pluses and minuses here and there, almost all stock markets made a sideways move in June. The reason why I was not proven right is that I underestimated the number of new investors.
Many new investors were added during the lockdowns. The combination of sitting at home, low stock markets that rose sharply, almost no savings interest and handy broker websites on the mobile made many people decide to invest.
In addition, there were sports gamblers who, when there were no more games, were looking for a different way to gamble. In the US, many relatively young investors became a fan of broker Robinhood. The switch from Bitcoins to shares was also often made.
Almost all of these new investors fall into the category of short term bargain hunters. A bargain hunter like Warren Buffett is sometimes waiting for the best opportunities for years. The bargain hunters who have been active in recent months have already bought at a fall of half a percent.
Just below a top, while US futures are in the red, while economic data is bad, just before the earnings season and while corona cases in the US are increasing sharply. It did not matter at all.
A share that was 0.5% cheaper than the day before was seen as a bargain that was not to be missed. And if it then rose again by 0.5%, they were right on their side. At least the ultra short term right.
Investors with experience know that you should trade on the bigger waves and not the smallest ones on the stock exchange. The bargain hunters who entered the big wave in March and April did very well.
But I doubt that the investors who stepped into the small waves in June did well. Especially because there is a phenomenon going on that I have never seen so extreme before.
Almost all major stock market funds, hedge funds, banks, professional investors and analysts are gloomy about the stock market and state that they are on the sidelines with all or at least some of their money.
Euphoria among newly-started investors and gloom and restraint among most pros. Who's right? There will come a time when the party with the most knowledge, not to mention the most money, will win on the stock exchange.
Sideways moving stock markets are an omen of this. During a long sideways moving stock market, an investor who takes a profit after a nice long run sells to an investor who hopes for a further rise.
With every small increase, more profit taking will follow. Bargain hunters come into action with every slight drop. Structurally, however, it is wrong. The profit taker sells because he expects no further increase. The bargain hunter buys because a share is slightly cheaper than the day before.
However, to get stock markets higher, a different motivation is needed. Buy it because it looks fundamentally good. However, there are currently no good foundations.
What remains for us are bargain hunters who have so far provided a safety net under the stock exchanges and thus managed to prevent a continuing decline. The question is how long.
Are the Americans going to lose the battle?
China first encountered corona. Hard lockdowns and significant economic damage. However, the Chinese quickly got it under control. That gives them an economic lead of many months.
Europe suffered a severe economic blow from the corona lockdowns. But it is now under control and the European economy has started to recover.
The US experienced a second and more powerful wave in June. At the beginning of this month, more than 57,000 new daily corona cases. US states are starting to tighten lockdowns again.
While China and Europe are recovering economically, the US is going the other way. That gives China and Europe an edge. This can have major consequences. Not just for American companies and the economy. But also for the dollar.
Less economic activity but also a FED that will have to continue to stimulate more and longer. That will put a lot of pressure on the dollar. I therefore expect a euro / dollar exchange rate of between 1.20 and 1.25 for the end of this year.
The US presidential election is also going to be more exciting due to the second corona wave. Trump has no longer his flagship of a good economy. Not getting corona under control can be blamed on Trump by the democrats.
When Trump gets into trouble he will choose an increasingly harsh tone. Corona, economic damage and the presidential election will create an uncertain and hectic second half in the US.
Last year, the Americans with their strong economy were still the best boy in the class. China and Europe are in better shape for the second half of this year. We will eventually see this reflected at the stock markets. As a result, European stock markets in particular can do better in the second half of the year than those in the US.
End of lockdown and end of support
The approach differs per country. But almost everywhere, companies and employees have been protected with government funding because of the lockdown. If the lockdowns go away, that financial support will also disappear.
Entrepreneurs are happy that their business can open again. However, it will have to become clear whether their company is still viable. Part of the turnover will not return in the short term. Costs and salaries must again be paid entirely independently without government assistance.
Unfortunately, this will not work for a number of companies. Now that the lockdowns in Europe are almost over, there is a second economic blow.
The lockdown hangover, as a result of which companies that are not able to quickly return their turnover to the old level still fall over or at least have to cut their workforce.
Small and medium-sized enterprises in particular will experience this. The result is a lesser economy, which is a problem for listed companies.
Results first 6 months
Beursman-ETF.com the ETF website
I bought 24 ETFs this year. For the short term strategy, I sold 24 with an average return of around 6.5%. For the long term strategy, I sold 13 ETFs with returns between 14% and 47%.
I only bought 1 ETF in June. I still remained very careful in June. Investing continues to balance risk and return. In June I saw increasing risks, and that also a month for the quarterly figures.
I avoided those risks. I have missed the opportunity to make a return. Incidentally, the sideways-moving stock markets also yielded little return. So based on both risk and potential return, it was the right choice to stay on the sidelines.
Nevertheless, the first 6 months went well with the ETF website. At the beginning of this year, I bought at the right time after the stock market crash and have been able to make good returns in recent months with sales. I still expect lower exchanges. After a drop I will board again.
The silver mine website
Result first 6 months: + 25%
The silver price was hit hard during the stock market crash earlier this year. Meanwhile, the silver price has already recovered to the old level of around $ 18. Gold did better because the gold price is higher than before the corona crisis.
It has therefore become a matter of time and the silver price will follow the rising gold price. Despite the unchanged silver price, the 7 silver mine shares have performed very well in the past 6 months. We still have to be careful with the quarterly figures.
Many silver mines are located in South America and mines had to close there temporarily because of COVID-19. Those quarterly figures will run from late July in to August. Those mine closings are known and are already in the price. In spite of this, the figures can still be disappointing or much better then expected..
The gold mine website
Result first 6 months: + 271%
The overall result gives a somewhat distorted picture. That's because of the Australian prospector. That company was able to find so much gold this year that the share went from 0.05 Australian dollars to 0.91 in 6 months. That is an increase of 1820%.
I bought that stock last September. In June, drilling started with 6 instead of 4 drilling rigs. I therefore expect many more good drilling results in July.
The results of most of the other gold mining stocks are disappointing to me, despite the fact that most have risen nicely but even 2 are still in the negative. Certainly in comparison with the silver mine shares.
Because the gold price has increased significantly in the past six months, in contrast to the silver price. In addition, because of COVID-19, fewer gold mines than silver mines have stopped. I therefore expect that many gold mining stocks will be able to rise significantly during the upcoming earnings season.
The stock market forecast for this month
I expect 2 things to demand attention this month. The first is the rapidly rising number of corona cases in the US. I don't think that letting it go on is a good idea. However, the question remains whether one dares to opt for the other option of strict lockdowns.
A decent solution is simply not available. It continues to choose from 2 disastrous scenarios. In June, investors had not yet paid much attention to it. I expect that there will come a time in July when it will become major news for the stock markets.
The second important item in July is the earnings season. I can already say that this earnings season cannot be compared to any previous. The expectations for the corona winners who are often in the tech corner are extremely high.
Setbacks then lurk. For corona losers such as the tourism sector, the losses may still be greater than expected or even better. For most companies, it remains difficult to estimate the impact of corona on the company figures.
For most companies, I expect large price movements in both the plus and the minus. After 6 weeks we will know what the sum of those pluses and minuses has done for the index itself. The first weeks of the earnings season will become particularly important.
Some major disappointments and investors do not dare to wait for the figures of other companies. If windfalls come in the beginning, stock markets can rise sharply.
The number that should then be closely monitored is the price profit ratio. If it rises too high, this is a prelude to a stock market decline.
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The monthly forecast for the AEX
The AEX has moved between 530-575 bandwidth throughout the previous month. An outbreak will cause a powerful move in that direction.
The first days after such an outbreak, it is still important that it is not going to be a false outbreak. I still expect a drop. First, because it is starting to get out of hand with the coronavirus in the US.
Secondly, because I expect that during this earnings season we will see that most shares, based on the price-earnings ratio, are way too high.