Looking back at the market development of April and May, one could believe that everything is fine. Markets have recovered the biggest part of the stock market correction.
Many market participants roll their eyes when looking to this heavy recovery of stock markets as they are feeling every day the negative results of the Corona Crisis. Restructuring for companies, unemployment, short-time work, chapter 11 applications and uncertainty about the future. The world economy was nearly stopped.
It looks like the economy overcame the first shock. The European Central Bank (ECB) decided to invest another 600 billion EUR after they had already announced a 750 billion EUR package for economic stimulus. Now the European Countries will get 1.350.000.000.000.— EUR to stimulate their companies and economies. This should lead the way out of the biggest recession after the World War II.
The nose dive of the economy seems to be halted. From China we get signs of recovery. Production started again in nearly all countries. It looks like we could get a V-recovery out of the crisis. Is that a real possibility? Entrepreneurs as well as consumers are unsure. Consumption could start much slower than expected. Stores, restaurants and hotels are waiting for the big run, which comes quite slow.
How many companies will survive this crisis? We believe that we will see the peak of insolvencies next year. Some well known names were liquidate quickly. We are sure that quite a lot could still follow.
Record unemployment rates are kept lower with short-time work models. How many people will slide from short-time work directly into unemployment? As soon as government support for short-time work will exceed, we will see the truth with a delay. A second wave of dismissals could follow.
With all cautiousness which the real economy suggests we are facing an enjoyable upmove of stock markets. We are aware of missing alternatives to stocks. No interest and therefore no earnings in so called secure investments.
Very high prices for real estate which minimize yields in that field dramatically. Equities seem to be the only alternative as an investment into real assets which we see as very important in such an environment. The evaluation of stocks is in the meantime also more than fair and we should be very careful.
“Don’t fight the trend” is an old widom of stock market participants. We will keep dancing on this party but we are dancing very close to the exit. The next correction could be again of bigger size.