Thursday, April 1st, 2021
Dax over 15,000 points
Why is the stock market ignoring the real economy?
From Stefan Schaaf
The vaccination is not progressing, politicians are not getting the pandemic under control, retail and gastronomy are on the verge of collapse. And the speculators fill their pockets on the stock exchange. But professional investors are not interested in any of this. Why?
If an important stock index breaks a smooth mark up or down, then the public excitement is always great. For professional investors, on the other hand, it doesn’t matter at all whether the Dax has just passed the 15,000 point mark or not. For them, completely different indicators apply than what is now again described in the usual helpless need of explanation as a “psychologically important brand” or “sound barrier”. For professionals, it is not the status of the Dax that is important, but its valuation, growth prospects or the dividend yield. Tech-minded investors may look at the 200-day line or whether a head-and-shoulders formation is forming, but not at smooth 1000s.
And yet the first jump over 15,000 points in the most famous German stock index will trigger a discussion. How can it be that the stock market has become so decoupled from the real economy? The vaccination is not progressing, politicians are not getting the pandemic under control, retail and gastronomy are on the brink of collapse. And the speculators fill their pockets on the stock exchange, so it will be heard.
For this German navel gaze in connection with stock market patriotism, professional investors who determine the direction in the market will not show any understanding. For them, it does not matter whether they are vaccinated at Easter in Thuringia, whether they can go shopping in Tübingen or who says what in the CDU. Contrary to what people like to write, there is no such thing as a “Frankfurt stock market”. Of course, a large part of the shares of German companies are still traded on the systems of the Deutsche Börse, based in Eschborn near Frankfurt. But the direction of the Dax does not depend on what is causing political or economic excitement in this country.
But because many Germans prefer not to buy shares, investors from all over the world are taking advantage of buying German shares. But that also means: The German stock market and thus the Dax, often incorrectly referred to as the leading index, are following the global trend. And the big boys on Wall Street still set the pace, and they probably don’t know what to do with the names Armin Laschet or Markus Söder. Why should you also deal intensively with a small niche in the capital market such as the Dax? For them, the big thing counts: the US economy and thus its “own” home stock market, which makes up around 60 percent of global market capitalization. Some may not like that, but that’s how the weights work.
While a pandemic and vaccination chaos depression is spreading in this country, the USA are grippingly optimistic. In just a few weeks, herd immunity against Covid19 could be achieved there, and then a gigantic economic program will pull the world’s largest economy out of the crisis. It is this optimism that drives the stock market up and that also radiates on the Dax. Finally, the index contains a number of companies that are export-strong and benefit more than average from a global economic recovery, regardless of how the vaccination debate is going on at home.
The Dax follows the global trend
Viewed globally, the Dax is a local niche index that, depending on how you look at it, makes up between three and four percent of the global stock market, despite heavyweights like Volkswagen or SAP. And VW could actually be the decisive driver for the jump over 15,000 points in the Dax, because more and more investors are realizing that the Wolfsburg and not Tesla could be the real winner of the switch to electromobility. There is already discussion in blogs about whether the VW share could rise to 1000 euros.
The real economy and the stock market are therefore heading in the same direction. Much more important for investors than the 15,000 points in the Dax is whether the important US benchmark index S&P 500 will soon rise above the 4,000 point mark or not. The fact that US investors set the mood applies upwards and downwards.
As early as Monday there were fears that the events surrounding the highly indebted hedge fund Archegos Capital Management could trigger a correction in the stock markets. The indices were stable, but that doesn’t always have to be the case. While the share hype has recently been discussed in abundance among private investors, the Archegos case exposed a deeper problem: debt-financed bets by large investors like hedge funds. In the worst case, private investors gamble away their vacation funds or retirement provisions. These are individual disasters, but not relevant to the financial system. Because the banks are not involved here. On the other hand, they have lent large sums of money to hedge funds that are on credit on the stock market.
In the Archegos case, nothing happened in the overall market, but it doesn’t have to stay that way in the next, similar case. Then today’s Dax high of 15,104 points (as of April 1st, editor’s note) could actually remain for a long time.
The article first appeared at Capital.de
The pandemic has destroyed the life’s work of thousands of entrepreneurs, destroyed and newly created assets on the stock exchanges, made millions of jobs unsafe and shook Germany’s solid state finances. Amongst other things. One year after the start of the previously unthinkable, a state-ordered shutdown of large parts of the economy, ntv.de draws a balance sheet in the spotlights.
- From stock market crash to soaring
- Only a mountain of debt remains of the lifelong dream
- Last hope online shop
- In the waiting “hell” of Corona aid
- Corona brings back inflation
- The pandemic throws back the turnaround in traffic
- Skilled workers remain in short supply
- How the debt brake became a trap
.