Why Should You Start Investing In the Stock Market right away?
Global stock markets took a bit hit over the recent months. The German DAX, which is the index of the 30 biggest German companies, like SAP, Siemens, BMW, Daimler and BASF, lost more than 2.600 points – or 19,11% from it´s peak in January 2018. Also in the US the stocks tanked. Tech gigants lost heavily in the last three months: Apple (-23%), Facebook (-19%) and Amazon (-20%).
Make no mistake, the markets were sprinkled with bad news.
On the monetary side the US-central bank Fed has turned it´s path and start raising the interest rates – after nearly a decade of low to zero interest rates. Top that with the potential global trade war, initiated by the US and president Trump, tensions in the European Union, the Brexit, the Italian crises within the EU and renewed tensions between Russia and the Urkraine – just to mention a factors hitting the markets. That bunch of news raised the fear of overvaluation and an upcoming recession interest rates margin
But the current market environment offers chances for the brave investors. Think about the following five reasons:
Do not overestimate the rising rates!
The media tonality is rougher than the concrete measures (measured by their economic significance) are in reality. It is not forseeable that the rise in interest rates in the US could become a problem for the US economy in the future. Measured by the state of the US economy and its growth momentum, interest rates in the US are still – historically speaking – at a very low level. We can assume that the long-term interest rate can still rise in the short term – that it will clearly exceed the current level in the medium and long term is rather unlikely.
Stocks are oversold!
Technically the stock market is heavily oversold. There was too much value lost in a short period of time. Typically, the market should bounce back with live trading for a while. Maybe the markets don´t challenge their historical peaks in the next few months, however rebounds of 50% or even 75% of the losses suffered over the last weeks offers an attractive return-to-risk profile. For example Apple. The stock lost from it´s peak of 235 USD all the way to 170 USD, resulting in a 65 USD drop. If Apple it runs up just to half the losses (32,5 USD), you would make a return of 18%. If Apple could challenge it´s all time highs again the return would be a stunning 38,5%. This is not a bad bounce back!
Stocks will further outperform bonds and other investment alternatives!
Stocks reward their holders with current income in the form of dividends and long-term appreciation in value. Temporary distortions in the financial markets do little to change this, as long as the economy rebounds after a recession, which has always been the case so far. The mediocre returns on other smart investment and the ongoing low interest rate policy suggest that equities will perform significantly better than bonds in the coming months and even years. There are quality equities in all regions, currency areas and sectors.
US stocks are good but European stocks are better!
US companies should continue to benefit from the strength of the US economy and the Trump government’s fiscal measures. Another important stock market driver will be share buybacks, which are expected to amount to around a trillion dollars in the coming year. Deutsche Bank says: “The US commodities, industrial and financial sectors, for example, could be of interest to risk-averse investors,” These are valued lower than the market as a whole and at the same time have high profit expectations. Deutsche Bank added that, “European equities are currently particularly cheap.” However, the DAX is not one of Deutsche Banks favorites, as it is very sensitive to economic developments due to its cyclical orientation and its high share of auto stocks. In Europe, shares in the basic materials, construction and materials, financial services and oil and gas sectors seem particularly interesting. Nevertheless, Deutsche Bank sees potential for the DAX: the forecast for the end of 2019 is 12,300 points. The price target for the EuroStoxx 50 is 3,300 points, for the S&P 500 3,000 points. A good buy if you invest now!
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Seasonality is on your side!
Ever heard about the saying „Sell in May and go away“? If yes, good. But do you know the second part of this wisdom? It says that „But remember to come back in September!“ And here we are now. Historically stocks outperform during November to May. From 1998 until 2017 stocks we up during this period 13 times. Also think about the year end. Managers of funds are basically enforced to invest in stocks – as the reporting season looms. Hence, stocks will take a lift as no fund manager wants to lose investors as he did not invest and picked the underperforming stocks in the reporting year.
Be smart and invest now!
The time is right to invest in stocks right here in right now with bernstein bank. The arguments mentioned above are bulletproofed and are based on rationals not irrational market behaviour. So, there are good reasons for you to put your money at work. However, investing bears risks. No doubt about that. So, make sure, that you diversify and also set a stop-loss, which is a maximium amout of loss you can take if things will come the other way.