Stock markets

Are the storm waves picking up on equity markets?

For many investors, price movements on equity markets have become more tempestuous. Rather than experiencing prolonged phases of turbulence, market players see themselves as being caught up in brief but hefty whirlwinds which regularly leave a trail of damage on markets. Can empiricism, i.e. an analysis of price movements from the past, confirm this assessment? To answer this question, we examined the distribution of daily price fluctuations on the DAX between 1965 and the present. The result shows that, 78% of the time, prices moved within a „normal“ fluctuation band of daily returns of between – 1.2% and + 1.2% (for friends of statistics: plus / minus one standard deviation). So far, so good. However, these statistics fail to tell the whole story. Capital market researchers have revealed anomalies in the return data, such as extremely positive and negative daily returns. In statistics, these are referred to as „fat tails“,…

Equity markets stage the strongest start to the year since 1975 – is it time to get out?

The past stock exchange year was marked by severe share-price fluctuations that ended up in heavy losses in the final quarter. When prices fall unexpectedly steeply, then a significant recovery usually follows just as rapidly. This is also the case in 2019: Since the beginning of the year the S&P 500 has risen 12% and the Nasdaq 14% – the best start on US stock exchanges for 44 years. The DAX also rose 9%. The best share-price performance was delivered by Chinese shares, with the CSI 300 climbing 22%. The economy in the USA remains pivotal for the market’s future performance. There are many critical voices that believe the US economy will soon be heading for recession. The main argument here is that we have been going through a phase of expansion for ten consecutive years, so the time has come for the USA to go into recession. This could…

Inflation rate in Euroland moves further off the ECB target figure

Euroland inflation is receding further. In January the annual rate shows a rise of 1.4%, as against 1.6% in December 2018. The reasons for the downward movement are (as in past months) energy prices, which by comparison with the previous year are now exerting only modest pressure on prices. As a result, doubts are growing whether the ECB will achieve its inflation target of “close, but below 2%”. The hopes of ECB President Mario Draghi have rested of late on the countries that are currently having to contend with an increased lack of skilled labour and rising wage increase levels, above all Germany. There, but also in many other Euroland member states, the momentum on the wage front has at best been at a sound level. The harmonised inflation rate steadied in Germany at 1.7% in January. In other words, at least in coming months, no noteworthy boost to the…

Best start to the year in 30 years

2018 was undoubtedly one of the worst stock exchange years for a long time. The pessimistic sentiment and disappointment about the markets still linger on for many investors. In this lethargy many have overlooked the fact that the markets have staged the best start to the year for 30 years. Since 1 January the S&P 500 has gained 6.9% – the best start since 1989. By way of comparison: The average monthly increase in January is only 0.9%. The DAX also put in a very strong performance in January, also rising 6.9%. Within the past 30 years this performance has only been outstripped by the recovery movement in 2012 and by the share-price fireworks display that was seen around the time when the ECB launched its bond-purchasing programme in 2015. It is now high time to leave the weak performance in 2018 behind us and take an objective look at…

Ifo survey: German companies’ confidence is dwindling

Sentiment among German businesses deteriorated appreciably across the board at the beginning of the year. In January, the ifo business climate index fell lower than at any point in almost three years. Particularly hard hit are corporations’ business expectations, which have truly slumped. Managers were last similarly sceptical of the future prospects back in 2012. Corporate Germany is evidently gradually losing confidence in a solution in the foreseeable future to the political problems that are increasingly placing a drag on the economy. It is once again industry that is worst off, as it is to an ever greater extent suffering the consequences of the trade dispute between the USA and China. The risk of a hard Brexit has likewise become far more threatening of late. The signs of a downturn are also growing in sectors that rely more heavily on the domestic economy. In the wake of these disappointing figures,…

Dividend yields more attractive than ever before

In recent months, share prices have fallen much more sharply than the expected dividend payments. As a consequence, dividend yields have risen noticeable. The DAX and Euro Stoxx 50 are signalling levels of 3.7% and 4.3% respectively, way above the historical levels. At the same time, yields on bond markets have fallen sharply in recent months. The yield premium of DAX dividends over ten-year German government bonds has thus reached a new record high of 3.1 percentage points. Dividends are therefore attractive – both in absolute and relative terms. All in all, the new year started off calmly for stock markets which are recording clear gains. However, nothing has changed in the difficult underlying conditions: the political uncertainties continue to exist in many different forms and sizes. Only the market – after our stock market barometer had plunged deep into negative territory at the end of the year – is…

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