What to Expect After the Stock Market ‘Rally’

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What to Expect After the Stock Market 'Rally'





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Experts forecast a consolidation of the increases after the pull caused by the huge fiscal and monetary measures to boost the economy and the lack of profitable alternatives. But there are risks that can lead to sales.

From panic to euphoria in two months. Stock markets have experienced a bullish rally that has led the main world indices to bounce between 5% and 18% since May 22. In the case of the Ibex, it leads the rises with 17.55% and has its sights set at the 8,000 point mark, after closing on Friday at 7,872 points. And in the United States, the Nasdaq index closed 3 points from the all-time high on Friday.

What can you expect from the bags now?

Experts forecast some consolidation after the sharp rise in a short time. It could be around 10%, but there is a lot of liquidity and as soon as the money falls a little, it will come back in and hold the indexes until the opening of the European economies becomes a reality, highlights iCapital. Of course, the “easy money” in the first phase of recovery is already done. There are two opposing forces. On the one hand, the weak macroeconomic data and the drop in results. On the other, the liquidity and optimism generated by the stimuli.

Are there reasons to be optimistic?

We are right in the month in which a new cycle begins, with the most expansive monetary and fiscal policies in history. Citizens’ mobility is beginning to be allowed and there is a turning point in consumption, industrial activity and international trade. For this reason, investors are already discounting a strong recovery in companies’ results for 2021 that would continue in subsequent years.

As happened in 2009, when the MSCI World rebounded 64% from the low in March to the end of that year, the probability of a credit crisis, bank, on the periphery of the euro, as well as a serious outbreak of Covid dissipates. -19. The potential of the bags will depend on the normalization of economic activity.

Why are hedge funds expecting a sharp drop in stocks?

These types of investors are seeing valuation dispersions and a strong disconnect between economic and financial reality. “If you look at the macro data, this rally doesn’t make sense,” says atlCapital. There is no more to see the forecasts for falls in GDP (the ECB expects GDP in the euro zone to sink by 8.7%) and earnings (between 20% and 30%) for the coming months. Added to this are drowsy risks such as the tension between China and the US, the situation in Hong Kong or Brexit. RSI technical analysis indicators are signaling overbought.

Is the real economic situation listed on the Stock Market?

The market quotes expectations and always goes one step further. Now what discounts is a recovery in V in the US and somewhat more subdued in Europe. There are highly penalized companies, such as tourism companies, and others that have risen a lot, such as technology companies. The question is whether the market is right. The reality is that nobody knows what the real economic situation is and how and when this crisis will emerge.

Will the rotation of sectors continue?

If the situation is normalized and there are no new outbreaks, there will be a rotation of the portfolios: from growth companies to highly penalized sectors, such as automotive, manufacturing and tourism. Others such as health, technology and electricity could stay flatter. But in moments of uncertainty, money will return to seek refuge in them.

What values ​​should be in?

The most punished can do better in the short term by recovering from the cycle. But there are firms that continue to see potential in US technology sectors related to health and macro structural trends (technology, pharmacy, energy and ecological transition), which do not depend on the economy being very strong or on rising rates. Industry and construction are halfway there and highly supported by the EU Recovery Fund, and may accompany the upward trend. Infrastructures can also do well, and with or without sprouts, telecommunications, according to DPM Finanzas. They have taken advantage to lower financial costs.

What will happen in the Stock Market if there is a virus outbreak?

It will depend on whether you require confinement or not. A return to the closure of activities would be disastrous. But if they are more contained sprouts their effect could be punctual. With each passing week, the appearance of some treatment that minimizes the risk of death and a possible vaccine by the beginning of 2021 is more likely. If it were to go ahead, the increases in the Stock Market would be important again. The advice is: prudence and avoid euphoria and panic.

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