Sunday , April 2 2023

The stock market is going crazy – or why are prices rising so suddenly?


Dax closed on Friday at a new record – despite Corona’s worries and riots in Washington. t-online explains why and if it will continue this way now.

The chaos in Washington, the slow start of vaccination, the continuing number of crown cases: in fact, these should not be good days for international financial markets. Due to the uncertainty of many news and events, investors and traders in the stock market should actually be insecure and cautious in the stock market. Actually.

In fact, it is the opposite: the most important stock indices, including the German Dax index and the American Dow Jones index, reached new highs on Thursday. On Friday, Dax even closed above the historic 14,000-point mark.

Why is this? How could things continue on the stock market in the short and long term? And is it still worth it for me as a small investor to enter the market? t-online answers the top five questions about the annual stock market rally.

Why are stock prices rising so much right now?

In short: Because there is a lot of money involved at the moment – and there should be more. On the one hand, this means that central banks and governments are pumping huge sums of money into the economy to keep troubled companies liquid.

On the other hand, many small investors, in particular, have saved a lot of money in the last year, for which they are now desperately looking for profitable investment opportunities. It is becoming increasingly rare to find what they are looking for in banks or sellers of fixed interest securities, such as bonds, because there is no interest here. The result: there is no alternative to investing in stocks for more and more people. Due to this increased demand for shares, prices are rising.

In addition, the proverbial “future is traded” on the stock market. This means that many investors already seem to tick off the current large number of Corona and the economic crisis again aggravated by the blockade and look ahead with confidence. In the hope of the vaccine, many cling to the fact that life will return to normal by the middle of the year. For this phase, in which consumption, for example in the form of travel, increases again, many are already stocking up on the corresponding stocks.

The fact that even the horrific images of the Washington Capitol assault do not tarnish the mood of investors is linked to a similar principle: many investors are already waiting for the moment after January 20, when Joe Biden will replace Donald Trump as US president. – and, in addition to the US $ 900 billion in recent aid to the Crown, it is likely to launch additional packages for the US economy.

Will this continue in the short term?

Yes. It is very likely that stock prices will rise slightly – even if they do not continue forever. “The pace is extremely high right now. Therefore, the stock market will soon take a breather,” said Christian Kahler, chief investment strategist at DZ-Bank t-online. “Investors should be prepared for countermeasures.”

There are several reasons for this. On the one hand: the blockade in Germany, which still depresses the state of purchase and corporate profits – especially in the tourism and tourism industry. “At the latest, with the first quarterly figures for spring, there could be a disappointment,” said the investment expert.

In addition, the following applies: Especially in the case of US technology stocks, “exaggerations” have occurred, says Kahler. “In the pandemic, technology companies received an extra boost.” This will decrease significantly after the Crown.

But Biden’s politics also play a role in technological values. “Investors could evade investment if Biden announces it will regulate large US technology companies more closely.”

Where could Dax be at the end of the year?

That is the big question. It is not possible to predict exactly where the key stock market indices will be – but probably not far from the current score.

Stock expert Kahler expects Dax to land at about 14,000 points by the end of the year. “We’re sticking to our November forecast,” Kahler said. At that time, DZ experts assumed a historical maximum of 14,000 points, which was already broken on Thursday during trading and closed on Friday at Dax level. “But there will be corrections and countermeasures, so the forecast can still be correct.”

The same goes for the US S&P 500 broad index or the Nasdaq 100 technology index. Therefore, the S&P 500 could be at around 3,800 points at the end of the year, just as the Nasdaq is currently at around 13,000 points.

“We expect things to improve significantly in the next few years, though,” Kahler said. The reason: “After a recession, there is an increase – and as a result, stock prices rise significantly.”

Should I come in now?

Yes. The most important question is not when you have to enter, but how. Many investors worry about choosing the right time to invest. However, you will not be able to perform the perfect synchronization. And if so, then by chance.

Because the correct prediction of the market is a matter of luck. However, what you can influence is a well thought out strategy. One of these is the so-called buy-and-hold – a long-term passive investment strategy in which you cannot be bothered by price fluctuations.

With buy-and-hold, you can either invest a large amount at once, or – and this makes the entry point even more irrelevant – create a savings plan.

So, you pay in smaller amounts every month and you can even look forward to the prices dropping after the purchase. Because then you get more for your money and get rid of profits as soon as prices rise again.

Basically, the following applies: you should bring enough time with you to be able to cope with price fluctuations. Preferably at least 15 years. The longer the investment horizon, the stronger the effect of compound interest.

How can I participate?

If you want to invest in the stock market, we recommend a savings plan on a listed indexed fund or ETF (“Exchange Traded Fund”) in short. With ETFs, a computerized algorithm maps indices such as Dax, Dow, Nasdaq or the international MSCI World.

So ETFs always grow in the same way as the index they are looking for. Because they are a multi-action package, unlike individual actions, you do not bet everything on a single card. That reduces your risk.

Invest money without big risks: in this animation, t-online explains how you can easily invest your money in funds and ETFs. (Source: t-online)

The general rule is: the more you spread – that is, the more different stocks there are in an ETF, the safer your investment. Therefore, an MSCI World global ETF, which contains more than 1,600 companies, is more recommended than an investment in Dax – even if it is still growing.

Source link