Stock market forecast May 2020
Latest update: 02-05-2020 14:23
From a corona crisis to an economic crisis
Last month, most countries were able to significantly reduce the number of new corona infections. However, the lockdowns that were required for this caused enormous economic damage.
This will be the month that we will largely or completely get rid of those lockdowns. What we get in return is a difficult and even unworkable one and a half meter economy. A situation that makes rapid and full economic recovery impossible.
COVID-19 and the economic consequences
To date, there is no medicine yet. Remdesivir seems to have the best chance of the existing medicines. But much further than it seems to have a positive influence on a number of patients, one has not yet come.
It is not the miracle cure we need. Investigations into other medicines are still ongoing. Summer weather strongly inhibits the spread, but cannot prevent it 100%.
What we ultimately need is a vaccine. People are working very hard on that. But even the biggest optimists indicate that this will take at least another 6 months. That is too long for the economy and many companies.
Hope for a cure remains. But extensive research before getting approval and afterwards mass production is going to take too long for the economy and many companies.
I therefore assume that many companies will collapse in the coming period and unemployment will increase. Aid from governments and central banks can have a dampening effect. But it is impossible to keep all companies afloat for many months.
May will be the month that we will increasingly see the economic consequences of COVID-19. We will also see this at the stock markets. Especially if more and more listed companies are going to be in trouble. Some will certainly be saved.
Banks, possibly with the support of central banks or governments, will have to do this job. Banks are now in a much better position than 10 years ago. However, if more and more customers get into trouble, they can get into trouble themselves again.
February was denial month. In March, investors were shocked by the corona virus. April was the recovery and hope month. May will be the month of economic reality.
I expect that May will be the month for investors to be shocked by the economic consequences, increasing unemployment and the many bankruptcies. A sharp decline in the stock market will create buying opportunities. Because eventually the economy will recover again.
Central banks provide a safety net under the stock exchanges. However, that safety net is somewhat lower than the current stock markets stands. The timing when to buy and sell will be important. Below you can read how I fared during the previous decline and the subsequent increase.
My results this year
Due to the coronavirus, the first 4 months of this year obviously went completely differently than usual. Reason enough for me to see how it went with my investments. I view that per website.
Beursman-ETF.com the ETF website
Results period January 1, 2020 to April 30, 2020.
I bought 23 ETFs this year. For the short term strategy I already sold 21 of them with an average return of 6.5%. There are still 2 open. One is in the minus and the other just in the plus.
Long-term strategy results:
14% Lycor Russia ETF purchase: 1-4 sale: 30-4
15% Vanguard All World High Dividend ETF purchase: 16-3 sale: 14-4
15% iShares Euro Dividend ETF purchase: 16-3 sale: 14-4
17% Lycor CAC 40 ETF purchase: 17-3 sale: 14-4
19% iShares Asia Pacific Dividend ETF purchase: 23-3 sale: 14-4
22% iShares Euro Stoxx 50 ETF purchase: 19-3 sale: 14-4
22% ETFS Russell 2000 ETF purchase: 19-3 sale: 14-4
22% Lycor Pan Africa ETF purchase: 17-3 sale: 27-4
28% VanEck AEX ETF purchase: 16-3 sale: 14-4
28% iShares Korea ETF purchase: 19-3 sale: 14-4
Of the outstanding long-term positions, 1 is in the minus. All others in the plus.
The silver mine website
Result period 1 January 2020 to 30 April 2020: -15%
When stock markets started to fall sharply in March, the silver price also fell sharply. A quick recovery followed. But on April 30, the silver price was still a lot lower than the first months of this year. So we have to wait for further recovery.
Falling stock markets and a much lower silver price. This affected the silver mine stocks very much. The silver mine shares recovered reasonably well. But certainly not yet complete. It has 2 causes.
Now that the electronics industry is not running at full speed, the demand for silver from industry is at least lower. Many silver mines are located in South America, where COVID-19 required most mines to be closed at the request of the government.
Within a few months I expect a strong picking up silver price. Many silver mines have been closed for a while, there is already a great demand for silver coins and more and more electronics companies are starting up.
Too little supply and a strongly increasing demand will cause the silver price to rise sharply in the not too distant future. However, this was not the case until April 30 and therefore (still) lagging results in the silver mine shares.
The 7 silver mine stocks I invest in have fallen by an average of 15% over the past 4 months. 6 out of 7 went into the minus. Only the silver seekers share purchased on 28-2 is in the plus.
The gold mine website
Result period 1 January 2020 to 30 April 2020: + 84%
When stock markets started to fall sharply in March, gold and gold mining stocks also fell sharply. The big difference with silver, however, is that the gold price then started a very strong recovery.
The gold price rose to a higher level after the stock market crash than before the stock market crash. Gold mining stocks followed but not in the same proportion. Gold mining stocks have lagged in terms of an increase.
Investors are still (too) cautious about boarding after the hard beating. They are waiting for the figures for the first quarter and proof that the higher gold price has also led to higher profits.
Those quarterly figures can provide an extra boost that has not yet been calculated in. Most ordinary listed companies have had to abolish or reduce their dividends. A number of gold mining companies are already dividend payers.
Due to the higher gold price, that can increase and the dividend can increase. Companies with higher profits and an increasing dividend will become a rarity on the stock market.
Many gold mining companies will, however, live up to the higher profits and the higher dividend (Newmont, where I do not invest in, already increased the dividend by 79% in early April).
As more and more dividend payers drop out or decrease dividends, the focus of long-term investors and large financial institutions may shift towards gold mining stocks. Not all mining companies already pay dividends.
However, the increasing chance of dividends will push all gold mining stocks higher. This month (the most important days from 5 to 7 May), almost all gold mining companies will publish quarterly figures.
The 7 gold mine stocks I invest in have risen by an average of 84% over the past 4 months. 3 of the 7 still in the red. 4 of the 7 ended the 4 months in the plus.
The strongest share (Australian prospector who found a lot of gold) rose in those 4 months by 686%.
With beursman-ETF.com the ETF website I try to buy after a decrease and to sell again after an increase. That decline and rise came. Despite the hectic market, I managed to buy and sell at the right time.
With beautiful results as a result and also in a very short time. We now have to wait for the next drop (which I expect) to repeat the trick.
The silver mine website was hit from the stock market crash. Despite the recovery that has already started, the result for the past 4 months is still negative. We have to wait for a higher silver price. It will also come in a while.
The current situation provides good buying opportunities for silver mining stocks this month. Because many of those silver mining companies are coming with figures this month. There are still some setbacks. Low silver price and lower production because mainly South American mines are still due to COVID-19.
However, that silver price will rise and those mines will open again soon. That makes punished silver mine stocks a wonderful buying opportunity.
My gold mining stocks were severely damaged during the stock market crash. However, that was temporary. Despite this, gold mining stocks have lagged behind the sharp increase in gold prices. The upcoming figures season will make them catch up.
Difference in strategy
The procedure is always getting in and out on the ETF website, beursman-ETF.com. I do this with a short-term strategy with which I try to achieve a return of 5% or more within a month.
And the long-term strategy with which I try to achieve a much higher return within a year. The method of buying after a decrease and selling after an increase works best when the waves in the graph are the largest.
In 2019, those waves were small, which was a disappointing year for the ETF website. However, the volatility of 2020 makes for wonderful returns.
The strategy for the gold mining and silver mining websites is buy and hold. I always keep 7 shares per website. All I do is change the share every now and then. During declines, the portfolio temporarily goes red.
The reason I always stay in position is that we are in a bull market with gold and silver. Short-term decreases then occur. Yet I choose not to act on that. Gold and silver react strongly to panic, fear and sudden negative events.
The problem with those things is that they are unpredictable. It is therefore not possible to act on this in advance. So I always just stay in position and wait patiently for the recovery to come during a bull market.
Gold and silver
I don't think gold and silver will be bothered much by the stock market decline that I expect. During that previous stock market decline, there were panic and emergency sales. Then they sell everything. The upcoming stock market decline will go more smoothly.
I compare the current situation with the period 2008-2011. It started in 2008 as a financial crisis and in that year gold and silver also went down for a while. To rise enormously untill 2011 during the subsequent economic crisis.
This time it started with a sharp fall in the stock market due to a corona crisis, as a result of which gold and silver also went down first. Now the economic crisis, including low interest rates and much stimulation, will follow, causing gold and silver to rise sharply.
The stock market forecast for this month
April was the month of hope. May will be the month of economic reality and risks. To start with the greatest risk. Lockdowns are being phased out and people are ready for more freedom.
As a result, an increase in new corona infections is expected. If that increase is not too bad then there is nothing to fear. If in one country it gets out of hand, all other countries will also become more cautious.
I think the biggest risk is in the US. Because that is where they are most in a hurry to reduce the lockdowns. If a major outbreak occurs again after the lockdown has been lifted, it will not go down well on the stock exchange.
Poor economic figures, rapidly rising unemployment and many bankruptcies are not things that stock markets will rise from. I expect nothing more than a safety net from central banks like the FED if things really go wrong. Certainly no policy to let the stock markets rise very fast.
Then there are those typical things. May is almost always a sales month. This is in the minds of many investors and will play a role.
The other is that if there is too much and too rapid a recovery after a very large fall, there will always be a second fall. When I look at the graphs, this seems to be such a classic. I expect a fall in May.
How much and for how long? That cannot be indicated yet. I don't expect a small temporary drop but a big drop that will continue for a while. With daily updates I will of course keep you informed.