questions and answers
Check off the stock market year 2022, but how?
By Benjamin Feingold
December 31, 2022, 3:40 p.m
There’s nothing to argue about: 2022 was a bad year for the stock market. but how does it continue? How to deal with the loss-making investments in the depot? What opportunities will arise in the coming year? The most important questions and answers for investors at the turn of the year.
2022 was a bad stock market year – will it continue like this?
The disagreement on the stock exchanges is greater than ever before. This can also be seen in the widely differing price targets of the analysts for the S&P 500, the largest stock market index in the USA. Many stress factors from 2022 will also keep investors busy in the new year. The main focus remains on the central banks and the associated concerns that the tight monetary policy could cause the housing market, economic development and ultimately the labor market to slip. However, the statistics are encouraging: Pre-election years like 2023 offer the highest chances of winning on the stock markets in the four-year US election cycle.
How do I deal with losing investments?
A key stock market rule is, “Never fall in love with a stock.” A simple trick can help you come to a decision quickly. Do you still have the same arguments for getting started as you did when you made a purchase? However, if the fundamental and technical environment has changed fundamentally, the position must be closed and the free capital used to invest in more promising investments. A little tip: It is not uncommon for the winners in January to develop quite well over the year as a whole.
“Both at the index level and for individual stocks, however, an anti-cyclical approach has often paid off in recent years,” says Jürgen Molnar, an analyst at broker RoboMarkets. And indeed: Whether Fraport, Netflix, Lufthansa, PNE Wind, Deutsche Bank or Biontech – since the spring of 2020 it has been a good idea to leave when the hype got the upper hand and to buy when nobody wanted to hear anything about the respective share story.
Interest rates have gone up. Where does this create new investment opportunities?
The stock market year 2023 impressively showed how great the influence of interest rates can be on the stock markets. Even more important, however, is the money supply in the USA, which is likely to decline significantly again in 2023. Value stocks, such as those found primarily in the Dow Jones, have held up well, while interest-sensitive technology stocks are often still around their lows for the year. In 2023, however, the relationship could reverse again if the central banks end their tightening course and even hold out the prospect of interest rate cuts in view of a weakening economy. It wouldn’t be the first time the Fed has turned 180 degrees. “In the last 25 years, technology stocks mostly formed their base before the so-called old economy,” explains Stefan Riss from the fund company Acatis. This also makes sense given that tech stocks are the most sensitive and quickest to an end of the interest rate cycle.
How high are the risks for 2023?
No investment opportunity is free of risk. “Equities were not a particularly good choice in 2022. However, with 50,000 euros in the savings account, you have also lost 5,000 euros in real terms ‘thanks’ to inflation,” says analyst Molnar, pointing out the negative aspects of simple saving. After all, stocks offer the chance of price gains and dividends, throw off an average of seven to eight percent over a wide range over the long term and, unlike interest on a savings account, are not limited to a few percent in profit. On the markets, skepticism currently prevails – but that also gives reason to be optimistic. You buy stocks when fears dominate, not when everyone is asking for the next hot pick.
This also applies to asset classes such as gold or bitcoin. The latter were not wanted in 2023, Bitcoin played badly with the negative news about the crypto exchange FTX. However, leading providers like Binance have made it clear that they want to learn from the weaknesses of the market in cooperation with the regulators. Bitcoin and Ethereum are very skeptical. If you want to deal with cryptocurrencies at all, anti-cyclically now would be a good time.
Is it also worth holding cash?
Cash is also an asset class and important in order to be able to react flexibly to market developments. Since greater fluctuations are also to be expected in 2023, one formula for success is to control the risk accordingly via the investment and cash ratio. However, cash is only a short-term solution. If you want to park money for the long term and rely on interest, you should take a look at bond funds and suitable ETFs that contain bonds from US companies or states right now. “If inflation comes back and interest rates fall again, those investment vehicles can then benefit,” explains expert Risse.
Is the time for topics and trends over?
Technology companies in particular are researching mega-topics of the future. High investments are often necessary here and profits can only be expected in a few years. The rise in interest rates has put many stocks under pressure because future profits are worth less now and funding conditions have worsened. Irrespective of this, important future topics remain exciting topics. The certificate industry offers investment opportunities for almost every investment idea via index securities. At the moment, hardly anyone wants to know anything about share baskets for e-mobility, hydrogen, solar, green energy, cyber security or robotics and mobile payment. A good chance for all those who do not want to enter trends at the top, but want to enter a correction.
Are stocks even cheap at the end of the year?
There is no general answer to this question. Even at index level there are differences. The DAX is currently no longer as attractively valued as it was in September, when a price-earnings ratio of 9.4 was paid for the index. In the meantime, the factor has increased to 11.5. Compared to the long-term average, the discount is still around six percent. “When it comes to the P/E ratio, it should of course be noted that the profit, i.e. the G, is an essential factor. If the companies don’t keep their profits, the P/E ratio automatically deteriorates if the share price remains the same,” says Jürgen Molnar, classifying the key figure. The price-to-book value ratio, which is also popular, is sometimes a better valuation measure, since book values do not fluctuate as much in uncertain times. Here the DAX would be rated neutral with a factor of 1.5. The leading German index is therefore not a bargain, but it is not expensive either.
Fidelity CEO Andrew McCaffery warns of short-lived rallies in the coming year. This is because the markets wanted so much a turnaround in rate hikes that could give the economy a soft landing. But the central bank’s old maxim of “whatever it takes” no longer applies. “As long as the markets have not yet internalized this, there could always be strong price rallies in the hope of the Fed cutting interest rates. These are likely to collapse like a soufflé if the central bank does not deliver as hoped,” believes the Fidelity boss. However, there is a small consolation for all the pessimistic forecasts: At the end of 2021, analysts were almost unanimously positive about the year 2022 and it was a disastrous year for stocks. Why shouldn’t it be completely different in the end in 2023?
Benjamin Feingold operates the stock exchange portal Feingold Research.
This post is not a recommendation to buy or sell individual shares, ETFs or other financial products. No liability is assumed for the correctness of the data.