“Hot air”
Why prices on the stock exchanges are plummeting
By Jan Ganger
01/21/2022, 6:41 p.m
The price losses on the stock exchanges widen. For tech stocks in particular, things are going downhill steeply in some cases. Investors have to be tough these days.
Investors are likely to be in a rather moderate mood at the moment when they take a look at their share portfolio. Because at the end of the week it went further down on the stock exchanges. The German leading index Dax lost almost three percent at times, and finally went out of trading 1.9 percent lighter at 15,604 points. The weekly balance is also very weak with a minus of around 1.8 percent. The MDax of medium-sized stocks also fell into the downward spiral: it closed 2.0 percent lower at 33,642 points.
The leading US index S&P500 has even fallen by 6.5 percent since the beginning of the week. The tech stocks, which have rallied for months, are currently hit very hard. The Nasdaq 100 lost around 10 percent from its high for the year.
This begs the question: what’s going on there? The turnaround in interest rates is on. The markets are preparing for the fact that the US Federal Reserve will soon start a series of interest rate hikes in view of the high inflation. And when interest rates rise, stocks become less attractive. In addition, tighter monetary policy dries up liquidity in the market.
+++ Read the events of today’s trading day again in the stock market ticker. +++
“The markets, especially some US technology stocks and the hyped cryptocurrencies, were valued far too high. Now the end of Corona on the stock exchange, coupled with the fear of a turnaround in interest rates, is causing severe corrections and changes in favorites,” says Daniel Saurenz from Feingold Research im Interview with ntv.de. “The stock market is venting a lot of hot air that has been inflated over the past two years.”
Investors reduce their risk
Many investors are in the process of reallocating their money from riskier assets. This includes shares. However, this can be seen particularly clearly elsewhere: Cryptocurrencies are currently losing value particularly sharply. This may also be due to the fact that many investors are running out of play money in view of rising interest rates and falling liquidity.
Tech stocks are also feeling the swing in sentiment. After the publication of quarterly figures, the Netflix share collapsed by 20 percent in a short time and thus lost almost all of the profits accumulated in the corona pandemic. The technology sector is considered to be particularly sensitive to rising market interest rates. Because the companies manage their lavish investments with a high proportion of outside capital.
Investors seem to be using rising prices to sell again and again in their concerns about sharply rising interest rates. But that’s not all. “The combination of the turnaround in interest rates and the Omicron wave is becoming more and more of a tsunami for the stock exchanges,” says portfolio manager Thomas Altmann from asset manager QC Partners. “Caution is the order of the day.” In addition, the deployment of Russian troops on the Ukrainian border ensures that investors reduce their risk. “Tensions are increasing and experts expect violence to exacerbate the crisis,” says Christian Henke from broker IG. “No wonder that investors prefer to stay away from the Frankfurt stock exchange floor.”
Bunds in demand again
This can be seen, for example, in federal bonds, which are considered a safe haven. Investors are increasingly buying the stocks again – the prices are rising, while the yields are slipping back into negative territory.
“Investors should not be fooled by the false sense of security on the Dax. A correction of up to 14,000 points would not be surprising and could even be healthy,” says Saurenz. For many tech stocks, new opportunities would arise after corrections of sometimes 30 to 50 percent from record levels. Brand quality will emerge strengthened from the development. In terms of interest rate policy, the situation is changing, “but the new interest rate level is by no means a reason for panic.”