Wall Street creates economic value

Wall Street on the rise: can this continue in 2021?

For a few weeks in the first quarter there was a doom and gloom on the global financial markets due to the corona pandemic - then the ghost was over again. Some stock exchanges, especially those in the US with a high proportion of technology stocks, recovered quickly from the price slump, others in Europe noticeably more slowly. Will the upward trend continue next year thanks to approved vaccines? Or is there a risk of a serious setback because of the long-term economic consequences of the pandemic?

Wolfgang Habermayer, head of the Viennese financial advisory firm Merito, is "thoroughly optimistic" about the upcoming stock market year. After the severe recession of almost all national economies, he expects "strong overall growth" in 2021 due to the catch-up effect, and then back to trend growth of just under two percent. Above all, consumption should pick up again after households have put a lot of money on the high edge this year.

By the way, some capital from private investors also flowed into the stock markets - a positive development for Habermayer: "Fortunately, interest in securities has increased, you don't get anything for savings." But aren't stocks already very expensive? After all, on Wall Street, the market-wide S&P 500 index on average has to pay more than 37 times the annual profit (price-earnings ratio, P / E ratio) for the index companies - in other words, significantly more than a few years ago.

Draft interest slack

"It's not enough if you compare the current P / E with that ten years ago," replies Habermayer. "If you relate the current valuation to interest rates, you can see that the valuation on the stock market is not that high." In other words: the stock exchanges are valued higher than before, which speaks for lower future income, but compared to the current meager interest income they remain attractive.

Habermayer believes that the slack interest rate will not change anytime soon. He refers to statements made by the major central banks such as the ECB or the Fed in the United States, which do not want to tighten interest rates immediately even if their inflation target is exceeded by two percent: "These are very strong signals that interest rates will remain at zero or negative for a long time . "

According to Habermayer, there was a trend reversal in the sectors during the Corona crisis: The previously rather weak-growing industry had comparatively well through the year, while the previously strong service providers had a much harder time off. In his opinion, the pendulum will swing back again in 2021, i.e. the service sector will grow faster again.

However, Europe's banks are likely to face difficult years - after all, due to government support, the clean-up work on the Corona crisis is still pending, a wave of bankruptcies could roll in as early as 2021 - and thus many non-performing loans will turn into defaults. A burden that does not give Habermayer a major headache: "The burden is not so great that the banking apparatus cannot handle it."

And how will the high flyer for the Corona year 2020 continue? Will the technology sector once again leave everyone else behind, or is there even the threat of a severe setback? Neither, says the Merito boss. The big digitization push through home office or online trading happened this year, but the technology sector will benefit to a somewhat lesser extent from the fact that there is still some catching up to do with digitization in the SME sector. "These investments are still pending," emphasizes Habermayer.

Imminent risks

Behind this positive basic scenario, however, there are also risks that - if they materialize - could also cause considerable turbulence in 2021. Habermayer advises keeping an eye on three possible sources of danger: on the one hand, paying attention to the development of the corona case numbers and vaccination rates. An unexpectedly unfavorable development could again lead to long exit restrictions with economic repercussions.

Habermayer sees a further risk on the part of the governments if they let their fiscal policy support measures expire too quickly. He also attaches great importance to the company's results in the first two quarters of 2021: Should these turn out to be unexpectedly weak, the current good mood on the stock exchanges could quickly turn around again. (Alexander Hahn, December 31, 2020)