Are the stock market returns normally distributed?
Financial markets2021 will not be a walk in the financial markets
In terms of stock market returns, 2020 was a godsend for investors. If the coronavirus had caught the Europeans and thus the European stock exchanges in October or November instead of February, the stock market year would have gone down in history with a record minus. The market was able to recover massively from the end of March with a view to the upswing expected for 2021. The rate of return was still in the green almost everywhere. Actually a small miracle in such an economically disastrous year.
The miracle has two fathers: monetary policy and fiscal policy. Governments and central banks distributed money as if there was nothing easier, and basically it was. Both institutions have dominance, even if some Bitcoin believers or conspiracy theorists may see it differently. The US Federal Reserve, the ECB and the governments of the largest countries determine where interest rate policy goes and how asset classes develop. You can regret this, you don't have to approve of it in all its forms, but opposing it simply costs money. All known crash prophets and their followers felt this bitterly in 2020 - they did not achieve any return while others had been able to watch the prices rise since March.
It is not as certain as 2021 seems
But let's come back to the policy of central banks and governments. Of course, the current policy also obscures risks that could surprise some in 2021 and why you should build small insurance policies in your portfolio. Short positions via CFDs are always advisable as an addition, online brokers offer them. Classic puts are also recommended, at least as a small addition to the deposit. On the Dax, the VQ164E is a good addition with a base of 13,500 meters, on the Nasdaq the WKN KB4LBV is ideal. Bankruptcies, loss of rent, the length of lockdowns, the progress of the vaccination campaigns - it is not as certain as 2021 seems.
International investors are extremely optimistic at the turn of the year, they have invested more heavily than ever before and operate according to the motto that everything will be fine somehow. Even if in the end almost everything will be as it was before or at least a recovery on a broad front is possible, 2021 is likely to be bumpy. The stock market does not currently have setbacks in its price and this is precisely where cautious natures can start.
The cash quota for the new year may well be higher than usual, because stocks are highly sought after at the moment. But there will also be days in 2021 when hardly anyone wants shares. Maybe then you should strike sooner. In 2020, being brave when others were fearful paid off very much, and vice versa. This also applies in the new year.
Fear and greed are good advisors if you use them for yourself. At the turn of the year, greed dominated technology stocks, cyclical stocks, corona stocks and also bitcoin. Hardly anyone talks about gold, however. The topic of inflation has hardly been on the agenda up to now either, with an immense base effect waiting there in April and May in the face of negative oil prices in spring 2020. This, too, seems to be as good as forgotten.
2021 will be more complicated than many think
In short: the prospects for the stock exchanges in 2021 are good and the central banks will continue to prepare the ground for this. However, 2021 will hardly be silent and free of kickbacks. Investors should temporarily expect setbacks of 10 or 20 percent in the major indices at any time - it would be completely normal.
Daniel Saurenzruns the stock exchange portal Feingold Research with his team. It offers a daily stock market letter that you can test free of charge for 14 days. Sign in at [email protected] or try the stock exchange service under this one link out. You can find training days and coaching at NEW under feingold-academy.com
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