Can the NYSE ever crash?
Dax-Radar: is a recovery like 1929 imminent?
The European Central Bank (ECB) is supporting markets and the economy with a gigantic purchase program worth 750 billion euros. In addition, ECB boss Christine Lagarde is signaling that the central bank will do all it can to get Europe through the crisis. After the Fed has already taken massive and rapid measures in the past few days, the ECB is now also advocating with real determination to secure liquidity in the markets.
So far, the stock exchanges have reacted to the steps of the central banks with price losses. In the state of fear that dominates the stock exchanges, the actions of the monetary authorities were only interpreted as signals of crisis and not as substantial help. However, the more the panic mode becomes common knowledge on the stock exchanges, the more likely it is to lose its particular horror. With the most recent address by the Chancellor, the state of emergency has now become practically official.
The news in the coming weeks and months will initially continue to be determined by the development of the virus epidemic. The medical advances that pharmaceutical and biotech companies such as Gilead Sciences, Sanofi or Curevac are making in the development of vaccines and drugs will be decisive for the stock exchanges.
By then, there will be a serious crash in the real economy. It could be even more severe in the first half of the year than in the 2008/2009 financial crisis. At that time, economic output in the large industrialized countries shrank by more than five percent. The longer the state of emergency of lockdown continues, the freezing of economic and social life, the further the economic crash will go beyond the minus five percent envisaged up to now.
The fear of this is the decisive reason why the stock exchanges have not yet recovered substantially, even after extreme losses.
Nasdaq: Tech stocks defend uptrend
There are approaches to this. This is most evident in technology stocks and their most important barometer, the Nasdaq 100 index. Here prices have moved sideways between 6800 and 7600 points in the past few days and have no longer slid down without resistance as in the Dow Jones or the Dax. In contrast to the broader indices, the Nasdaq has so far been able to defend the upward trend that has existed since 2016.
There are two reasons for the relative strength of technology stocks: Firstly, the business models of Apple, Microsoft or, in this country, SAP generally suffer less from the lockdown than those of producers or service providers such as Volkswagen, BASF or Lufthansa. Second, there are a number of biotech companies and online groups that are opening up new opportunities during the crisis. This includes above all Amazon - not only because of its online business, but above all because of the cloud division, which is currently particularly in demand.
Model 1929: Strong recovery seems possible
There are also signs in the Dax itself that the panic sell-offs of the past few days are slowly subsiding. In the night from Wednesday to Thursday (March 19), the index slipped below 8000 points in professional trading. The total loss since the peak at 13,800 is 42 percent. That is now even a little more than in the crash of 1987.
This almost exactly reaches the extent of the acute price plunge in 1929, in which the Dow Jones plummeted from 345 to 195 points within 17 days. If you add a few unsafe days before the actual crash, the losses in 1929 amounted to 46 percent in 22 days.
After all, even in 1929, in the largest combination of crash, bear market and economic crisis to date, there was a real recovery following this sell-off. From November 1929 to April 1930, the Dow Jones rose from the low by 52 percent.
If you extrapolate this trend to the current Dax, this would result in an increase to 12,111 points measured from the most recent, over-the-counter extreme low at 7968 points. But such a scenario, which can be derived from the stock market development of the great global economic crisis, is probably a bit too optimistic at the moment.
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