The stock markets say: bye, bye recession!

World War II, the energy crisis, the de-industrialization of Germany, hyperinflation like in the Weimar Republic and a liquidity crash triggered by the central banks – certain market observers pulled out all the stops to draw attention to the impending disaster. There were warnings of a huge bubble bursting, a brutal economic downturn and even a global recession. Well, we’re still waiting for it.

Just so there are no misunderstandings: I don’t want to trivialize the global challenges, the risk of an “accident” exists at all times. Wars are always unpredictable, as are rivalries between major powers such as the USA and China.

But the financial pornography of eternal doom is simply unhealthy. Especially if you base your investment strategy on it. Instead of buying shares, you would have taken refuge in cash – and missed out on a lot of returns. In the race for attention, you obviously have to shout louder and louder to get your fifteen minutes of fame. Fortunately, the noise suppression of modern headphones is now really good.

Contrary to what certain market commentators would like to admit, the stock market environment usually oscillates between “not incredibly exciting” and “reasonably good”, and is not either “hopeless” or “fantastic”. Accordingly, you should also find a sensible balance when investing money and avoid extreme positions in your investment strategy.

What do you need to bear in mind when investing in the stock market?

Do you know what I pay attention to? The price movements on the financial markets. And I am seeing encouraging signs there. While economists with their sophisticated economic models are still wrestling with the question of whether a recession is imminent or not, the stock markets are climbing upwards completely unimpressed. In Hong Kong and New York, in London and in Zurich, share prices have been rising more or less continuously for weeks – led by the sectors that were hardest hit last year. Suddenly the shares of cyclically sensitive companies are in demand again, defensive stocks are out. It can happen that quickly. The end of the world has been postponed once again.

You and I know that “Mr. Market” has the annoying habit of all too often doing what very few market participants expect. “The main purpose of the stock market is to make fools of as many people as possible”, says a nice stock market saying. I can only agree with that. No one is immune from looking like a fool – but you shouldn’t make it too easy for Mr. Market either.

Despite gloomy forecasts (or perhaps because of them?), most stock markets have made their best start in years. The majority of stock markets have surged by more than 5 % in the still young year. How does this fit in with the recession forecasts? It just doesn’t fit. Especially as the price of copper has also risen by around 25 % since the summer and the price of oil has also stabilized. Why am I mentioning copper specifically? Copper is needed everywhere: for guttering, solar farms, offshore wind farms, water pipes, transmission lines and wherever electronics are involved. Nothing works without copper. It is not for nothing that the industrial metal is referred to on the financial markets as the “metal with a doctorate” due to its predictive properties for economic growth. And indeed: The price of copper is pointing upwards. If I had to choose between advice from Dr. Kupfer or from an economic prophet with a doctorate, I would give preference to the metal without hesitation.

What’s next for the stock market?

Robust commodities and rising stock markets tell me that the recession has been canceled or at least checked off. Even better: the hard dollar, which hit the emerging markets hard last year, is falling. This is a huge liquidity booster for the markets. In short: the recession is the topic of 2022, but when it comes to investing, it is important to look ahead.

It is becoming increasingly clear to me that the opening in China came at the perfect time and is now providing a boost to global growth. But that’s not all: inflation is weakening, the US Federal Reserve finally has an excuse to end its tightening cycle soon and the Chinese central bank is once again providing the markets with plenty of liquidity. Bye, bye recession!

It does indeed appear that the cautiously optimistic outlook I presented a month ago was not all that wrong. But at the risk of boring you: You shouldn’t get cocky about it. If you feel comfortable investing, if you feel the urge to increase the risks in your investment strategy or brag about your profits, you should pause for a moment. Because as I said, Mr. Market is just waiting to make you look foolish.

With this in mind, stick to your investment strategy and don’t be fooled when investing your money!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. “I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.”