Stock market cycle in transition: Stock markets keep their fingers crossed for Biden

Sunday January 24th 2021

Stock market cycle in transition
Stock markets keep their fingers crossed for Biden

The direction on the stock exchanges in the near future will largely depend on the new US President. Should this approach its priorities quickly, it should go further up. The main focus is on a further stimulus package. In addition, companies are increasingly opening their corona balance sheets.

The German stock market will continue to be shaped by the high expectations of investors in the new week. The focus should be on developments in the USA with the first steps under the new presidency of Joe Biden. The German leading index Dax had gained 0.6 percent in the past week. The corona crisis is still burdening the stock exchange again and again. The business closings in Germany have been extended and the number of infections remains a difficult topic.

"Whether the stock exchanges keep their momentum in the coming weeks will depend above all on how quickly the Democratic US president can implement his ambitious spending plans," says market analyst Milan Cutkovic from brokerage firm Axi. Biden wants to cushion the economic consequences of the coronavirus pandemic with an aid package worth almost two trillion dollars.

However, experts disagree on whether the new US president will get his plans through Congress. Neil Wilson, chief analyst of the online broker Markets.com, points out that the Democrat must at least get some Senate Republicans on his side. "That shouldn't be a problem," says Naeem Aslam, chief market analyst at brokerage firm AvaTrade.

Regardless of the recent course records at Dax, Dow Jones & Co., no speculative bubble can be observed, says Eckhard Schulte, head of the asset manager MainSky. "That may be true for individual stocks, but we do not share this opinion for the market as a whole. On the contrary, especially with a focus on the relevant drivers 'earnings development' and 'valuation', the stock market appears to us to be quite rational."

In the USA, almost half of the Dow Jones Index values ​​will present their figures for the final quarter of 2020 in the coming days. The numbers of the first heavyweights are also expected in Europe, some of the key data are already known. Siemens, for example, had already set a positive fragrance mark with strong preliminary figures before the weekend.

Nevertheless, price setbacks cannot be ruled out, warned Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank. Because the stock market cycle is currently in the transition to the growth phase, in which companies increase their profits and "grow into" their valuations.

In Europe, the medical technology company Philips and the luxury goods manufacturer LVMH will open their books in the new week. In the course of the week, the major bank UBS, Software AG and the laboratory equipment supplier Sartorius will be added. On Thursday, STMicroelectronics will then turn attention to the chip sector. Across the Atlantic, the technology companies Apple and Facebook present business figures. They are joined by the electric car manufacturer Tesla.

In terms of the economy, the Ifo business climate will be the first important publication on Monday in the new week. According to the Dekabank experts headed by chief economist Ulrich Kater, the Ifo barometer is likely to "show a split economy" – with a strong industry on the one hand and ailing service providers on the other. In their opinion, the lockdown is likely to leave its mark on the assessment of the situation.

The next interest rate decision by the US Federal Reserve is on the agenda on Wednesday. Experts don't expect any changes. Similar to the European Central Bank (ECB), the US Federal Reserve will keep its feet still and leave the field to the Biden government and its economic aid for the time being, says Commerzbank economist Bernd Weidensteiner.

At the end of the week, the stockbrokers turn their attention to the US consumer spending, among other things. The buying mood of consumers is considered to be the mainstay of the world's largest economy. The day before, the US leading indicators are on the schedule.