Stock market forecast October 2020
Latest update: 01-10-2020 17:04
The month of uncertainty and misery
Last month was moderate to bad for most stock markets. Profit-taking in tech stocks, uncertainties surrounding the US presidential election and fast-rising corona cases. American stock markets were more affected than the European stock markets.
Despite many red days last month, the European stock markets mainly moved sideways. This month 3 things will claim a leading role.
The American presidential election that will cause uncertainty. Also uncertainty about the business figures for the third quarter. The increasing number of corona infections will cause misery.
The United States Presidential Election
The election is on November 3. The closer we get to that date, the harder the battle between the 2 candidates. Scandals, mud-throwing and all sorts of other negative things have become normal during a US presidential election.
It is impossible to estimate how that will go this time. But there may be something in it that stock markets will respond to. In view of the negative tenor, this will not cause an increase but almost certainly a (short-term) decrease.
In addition, the question remains who will win the election. That creates uncertainty and investors don't like that. There is therefore a good chance that investors will reduce their positions somewhat at the end of this month in anticipation of the election results.
The earnings season
The first 2 quarters were dominated by the lockdowns. Bad numbers were forgiven in those quarters because of the lockdown effects. The third quarter is the recovery quarter.
Investors now want to see that sales and any profits have already picked up. On a quarterly basis, sharply increasing revenues and profits and investors will reward those companies with rising shares. Companies that are unable to show a good recovery will be punished.
Tech stocks are a separate category. Those are the corona winners. But the shares of those tech companies have risen very fast in the past six months.
Despite last month's small dip, the price / earnings ratios at those companies are still extremely high. The question is whether those tech companies can live up to the sky-high expectations. I think it's going to be difficult.
This earnings season will be much more extreme than other earnings seasons. One company will be dumped by disappointed investors. The shares of a company that delivers unexpectedly very good results will skyrocket.
The sum of those extreme fallers and risers will determine the stock market position. That can vary enormously from day to day. It will ensure that from the start of the earnings season volatility on the stock markets will increase.
Last month we saw the number of new corona cases increase again almost everywhere. Hospital admissions, occupied IC beds and deaths, however, were not too much. Many governments came up with stricter measures.
The big question remains whether corona will continue this month. It is difficult to compare it with the beginning of this year, because there were hardly any tests then and now a lot. If hospital admissions and the number of patients in the IC increase, we know what to expect.
Governments will then come up with measures that will cause a lot of trouble for the economy. Then there are 2 things to play. There is much resistance to stricter measures. That can be a hassle.
Entrepreneurs who have continued to pursue on hope rather than money they earn can still give up hope if more severe measures come without the proper compensation. That will cause a major wave of dismissals.
Given the still relatively low number of hospital admissions, this second corona wave may not be that bad. But I think the chance that it will continue is just as great.
Soft or hard lockdowns and mass redundancies are things that can be a problem for stock markets. Announcing large support packages immediately afterwards can ease the stock market pain.
The ETF website
At the beginning of this year, during the stock market crash, I bought a lot and made good returns. Last month I saw almost no opportunities. I was waiting for stock markets to fall. Those declines came but were not enough to get in.
In view of the issues that are going on in October (see above), I also wanted to remain cautious. The big picture remains. Stock markets declining until the American presidential election.
After that uncertainty disappeared and the FED has a meeting immediately after the presidential election and is very likely to announce a large stimulus package. As a result, the end-of-year rally will start in early November.
If there are decreases large or small this month, the closer we get to the end of the month, I will increasingly use them by buying ETFs.
Last month I sold 2 ETFs in the K group with the short-term strategy, each with a return of 7%. I bought 2 ETFs last month. One in group J and one in group K.
The gold mining and silver mining websites
Average over the 7 gold mine and 7 silver mine shares in which I invest for this year already beautiful returns. I should be very satisfied. But I am not.
Because I know very well that based on the current high gold and silver price, mine shares could have been a few hundred percent higher.
Compared to 2011 when the gold price was just as high as it is now, most mining stocks were up 1000% (it's 3 zeros) or more. With the exception of a prospector, this is not the case.
What is the reason? During the stock market crash earlier this year, those mining shares were pulled down hard. In the spring there was a nice recovery, but limited due to mine closures.
Despite the higher gold and silver price, these mine closures meant that the figures for the second quarter were mediocre and not representative. When gold and silver started to rise sharply from mid-July, mining stocks went up only slightly.
Mine closures created uncertainties about the second quarter figures and investors did not have the guts to get in full. When the figures for the second quarter came, many mining companies appeared to have had lower production due to corona.
That raised doubts about the third quarter. In September, a lower (but still historically very high) price of gold and silver, combined with falling stock markets that dragged mining stocks down, caused another setback.
All in all, it ensured that mining stocks have lagged far behind the already much higher gold and silver prices this year. That will change this month and next month.
At the beginning of this month, we will get the production figures for the third quarter from most mining companies. It is logical that production with the mines open will be much higher than in the second quarter.
At the end of this month, but especially in the course of next month, the business figures for the third quarter. Then we're going to get what we need; proof.
Proof that the profits of the mining companies, which are now fully operational, are soaring due to the higher gold and silver prices. The shares of those mining companies will then follow.
It will receive a lot of attention and attract new investors. Because I expect the gold and silver mining sector on the stock markets to be the sector with the highest profit growth in the third quarter. That is a very simple calculation.
A gold mining company with a cost of $ 1,000 an ounce makes a profit of $ 300 an ounce at a gold price of $ 1,300. At $ 1900, that's $ 900, a profit tripling.
Calculate the same with a cost of $ 1200 ……. Indeed a sevenfold increase in profit.
It's a different story for gold and silver seekers. To find a lot of gold and silver, they have to drill holes and drilling costs money. However, the higher gold and silver price made it no problem to get money for a major drilling program.
All seekers I invest in are therefore drilling. I'm already expecting some results this month. Depending on how good those results are, the shares of those seekers can then increase by tens or many hundreds of percentages.
What I'm going to do this month
With the ETF website I am still waiting for a stock market decline. Corona, presidential election and perhaps disappointing business figures can lead to lower stock markets and good entry opportunities.
Anyway, I want to take positions before the beginning of November. Because presidential election over and shortly after the FED and the end-of-year rally can begin.
With the gold mine and silver mine website, waiting for producing mines for production figures and third quarter figures and for seekers for drilling results. This month I do not want to change shares.
I think I've already gotten the good mining shares. I am excited to see how that will turn out in the near future. Maybe by the end of this year a few more mine share changes.
The stock market forecast for this month
Misery and uncertainties as described above will normally cause stock market declines. The question is how such a decrease will develop.
I do not think the chance of a crash is high. The necessary surprise effect is missing. Slowly down the stairs until the presidential election is more likely.
It may seem that my scenario of lower stock markets is a negative scenario. Strangely enough it is not. Because I expect a powerful year-end rally after the presidential election and the FED.
A nice and powerful end-of-year rally that drives stock markets to new heights always starts from a low level. That never comes after already risen stock markets. So even if you have to rely on higher stock markets, you better wish they would drop a little in October.
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The monthly forecast for the AEX
The support at 540 and certainly that at 530 remains important. I still have the expectation that the AEX will eventually drop through support at 530. The next heavy support is then around 500 and even more the 490.
Starting the end-of-year rally from around 500 would not be wrong. We can then be at 575 around Christmas. Then early next year when the vaccination is going to start to the 630 or depending on central bank stimulation even higher.