Stock market forecast January 2020
Latest update: 05-01-2020 00:47
How is business?
This month we will learn more about the state of the economy. In addition to many economic figures, also the start of the earnings season.
The earnings season
The figures for the fourth quarter are always the most important because for most companies this is also the closing of the financial year. With second or third quarterly figures, investors can always hope that the next quarter will turn out better. That is no longer possible.
The annual figures are fixed after the end of the fourth quarter. If companies have issued annual forecasts, they will be charged for this. That can be extra good but also extra bad.
The economy deteriorated a little further during 2019. A good number of companies will have suffered from this. However, that will not be a surprise for investors, as they already know that 2019 was not a great year economically.
A little less will therefore be accepted. But not much less. Because of the high stock markets, the price-earnings ratios are very high. There no room for serious disappointing earnings figures or even worse losses.
Listed companies are always very good at maintaining the level of profit, even when things are going a bit less economically. If they don't make it with extra sales or higher margins, they do it by cutting back.
They then redirect the policy of increasing investment to reorganisations and cutbacks. This turning point comes when economic expectations fall and corporate profits come under pressure. It usually takes half a year to a year before the helm is changed.
The German car industry was the first to get into trouble. That is why the German car industry was the first last year to receive profit warnings and came with announcements of major reorganisations and mass layoffs.
The industry is doing worse worldwide. If quarterly earnings turn out to be poor, many more industrial companies with reorganisations and inevitable redundancies will come.
What I am concerned about are the unemployment figures and wage figures. Unemployment rates continued to fall in 2019 and wages (particularly the US) increased considerably. Great for all those employees who have received a job or higher income.
But for companies it is a rapidly rising cost item that does not fit with the declining growth of the services sector and the decline in industry. Because of the sharp rise in labor costs, corporate profits, in particular in the US, may fall far more disappointing than we now think.
In addition, many (American) companies have been confronted with higher purchase prices due to import tariffs. The question is whether they have been able to pass on all those higher prices to their customers. That usually doesn't work out completely. This too may have put pressure on profits.
For this season, I generally expect disappointing sales and profits. No surprise for investors and only if the price / earnings ratio is going to be too high will the share be punished severely.
Prior to the start of this earnings season, I expect more earnings warnings than usual. In almost all cases, the share falls sharply on a profit warning and rises again weeks later after the announcement of the figures (and the accompanying hopeful talks).
During the announcement of the figures, I expect that quite a number of companies will announce reorganisations or cuts. Cost savings are what investors like.
That is why a share with the announcement of reorganisations will almost always increase. Companies know that too. That is why they often feel compelled to immediately announce reorganisations and mass layoffs when presenting bad figures.
This is the start of the new year and then it is common for companies to express expectations for 2020. A number of companies will certainly have good expectations for 2020.
Profit and turnover expectations lower than those announced in 2019 will not be appreciated, in combination with high price-earnings ratios. A frequently used excuse is that, due to uncertain market conditions, expectations cannot be given.
But investors, in combination with stock exchanges on all time high or highs, do not want to hear that either. I expect a hectic season. In the beginning it will mainly relate to individual companies.
Only a little further in the earnings season will an image arise to which the entire stock market will respond. This will only take place at the end of January or the beginning of February.
The trade deal
According to Trump, a very large first phase trade deal will be signed with China on January 15 in the White House. The Chinese have not yet come with a confirmation. We also do not know who will sign for China and what will be in the agreement.
As long as China does not indicate who will sign, postponement or cancellation remains possible. In addition, there is the uncertainty about what will be included in that agreement. Many investors assume that the trade deal is done. I keep having my doubts, very many doubts.
The ECB will meet again on 23 January. I do not expect the ECB to do anything about interest. Sometime during this year the QE amount will be increased. But the chance that this will happen this month is very small.
The press conference can become interesting. At the previous press conference, Lagarde appeared to have a very open style. She does not avoid the problems and talks about everything very openly. That is of course very good. But now that journalists know that, she can expect some more difficult questions.
We get the FED on January 29. I do not expect an interest rate cut in normal circumstances. Given the rapidly rising US national debt, the declining economic growth and the repo problem, the American financial system could use some extra money.
The current repo program ends on January 14. If an extension and a higher limit are required, this increases the chance of a QE. I still believe that the US needs a QE. That does not have to happen immediately this month.
The Fed may also choose to prepare financial markets first. Then the FED announces that a QE will probably be necessary in the long term. Much will depend on how the financial markets look at the end of January.
Low stock exchanges and the FED will talk about a QE with more conviction or introduce it immediately. Stock markets near all-time highs and the FED will wait a while with this powerful support.
The Middle East
With the killing of an Iranian general, a new Middle East era has arrived. Iran will want to hit back. Tensions in that region will increase even more. This is also not comparable with the war in Syria.
That is more a civil war with some foreign interference. For many investors a far from my bed thing. This Iranian conflict is between the US and Iran. If Iran attacks an American target in that region, it is about Americans and it will be main news in the US.
US investors can react strongly to those messages. And because the American financial market is leading, that reaction will be reflected on all stock exchanges.
It is impossible to predict how this will go. However, you can forget peace talks at this stage. This year it will always cause new escalations.
The oil price will rise every time. In quieter times, the oil price will fall again. But as long as the conflict persists, the oil price will remain on the high side. For this year I therefore expect an oil price (Brent) between 70 and 80 dollars.
However, if oil supplies from the Middle East fall back due to, for example, attacks on installations or ships, the oil price goes towards 100 dollars.
The gold and silver price
With the escalating Iran conflict, we have been given a new trigger that will always raise the gold and silver price. The gold and silver prices rise with every attack or confrontation.
In quieter periods, a small part of the fear gain will have to be returned. But the tension between Iran and the US will remain for a while. That lays a solid bottom for the gold and silver price.
Since the repo problem and the raising of the American debt ceiling, the dollar has weakened. A falling dollar is good for the gold and silver price. We now have to wait for what the Fed will do. A QE or hints on a QE and the dollar will weaken even further. Making gold and silver rise.
I continue to have my doubts about that first phase of the trade deal. If there is no deal, the gold and silver prices will rise. Nevertheless, for the longer term with gold and silver, the deal or not is not so important. The Fed and Iran are many times more important.
The first few days of this month the gold price rose to well over 1500 dollars and the silver price to above 18 dollars. It is the start of a further rise. In a gold and silver bull market, every subsequent rise is more powerful than the last.
Possible triggers in the form of Iran, possible trade deal reversal, falling dollar and FED actions are also sufficient. This quarter the gold price can go to 1700 dollars and the silver price to 23 dollars.
The gold mine and silver mine shares have the handbrake on just after the turn of the year. The shares are not yet optimally benefiting from the rising gold and silver price. Increases are going slower than you would expect based on the rising gold and silver prices.
Why is the parking brake still on? The average gold and silver price was not much higher in the fourth quarter than in the third quarter. Corporate profits may therefore have increased only slightly in the fourth quarter. That plays a role in the minds of investors.
The mining companies will provide figures after January. Then the fourth quarter is definitely behind us and the full focus will be on the first quarter. The later in January the more the average gold and silver price for this quarter is taken into account.
Because that average gold and silver price is going to determine company profits for the first quarter. Then this is the time to step into gold mine and silver mine shares.
The gold and silver prices are already high and it is expected that the prices will rise much faster in the coming months. However, the gold mine and silver mine shares are still lagging behind as investors have too much eye for the fourth quarter figures and too little for the rising gold and silver price.
If you want to know in which gold mine shares I invest: click here.
The monthly forecast for the stock exchanges
With Iran we have gained a new uncertain factor. However, the trade deal including content remains the greatest risk for this month. The impact of the earnings season this month will be greater than usual.
The Brexit also still plays a role. But I don't expect any surprises here. Hong Kong is still playing. There is still no solution. Then there comes a time when China is going to intervene. It will be related to the trade deal. China had to be cautious during the negotiations.
China does not have to take anything into account with a deal or after the deal has been canceled. The list of risks and uncertainties is becoming longer and longer. Unable to come up with an expectation for this month for where we stand at the end of this month.
If stock exchanges dive into the red, it is good not to forget the following. We will get the FED at the end of this month. With an interest rate cut or a QE, the FED has more than enough weapons to offset any stock market fall. I will keep you informed with daily updates.
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The monthly forecast for the AEX
The 600 is going to be an important number. Below it and a correction follows. Staying above it and the AEX is heading towards the 700. Given everything that is going on, a correction makes a greater chance. If there are stock market declines then I will go hunting for bargains.
Because at the end of this month we will get the FED. The Fed knows that with declining economic growth we cannot use major damage to financial markets at the moment. So they will come in action.