Stock market forecast october 2019
Latest update: 04-10-2019 13:48
A hectic month
September was the month of the central banks. More stimulation should have resulted in higher stock markets. That extra stimulation from both the FED and the ECB came. But those powerful stock market increases did not materialize.
Out of the blue there were suddenly major problems on the American repo market. The American financial world was short of money and the FED had to provide emergency assistance on a daily basis.
If there is not enough money in the financial system, fewer shares can also be purchased. This month started a lot worse. See below for each item what we can expect this month.
The trade war between the US and China
They meet again on 10 October. It would greatly surprise me if a deal came out of it. When that trade war started the Americans were in favor. Their economy was still doing well and that in China was weakening somewhat.
The American strategy was to increase the pressure to the maximum with hard words and hefty import duties. It was the clash of two cultures.
The harder and blunt in the US, the more chance of a quick and good result. Asians, however, experience all that harsh language and threats as a serious insult. That American tactic therefore had little chance of success. The roles have since been reversed.
The Chinese are economically troubled by it but can live with it. However, the American economy is also starting to suffer more and more. The American farmers mostly Trump voters have a big problem because China no longer buys their products.
In addition, it seems that the Chinese are buying up less US government debt. That can be explained in 2 ways. By exporting less to the US, the Chinese also receive less dollars to buy American government bonds.
In addition, the Chinese buy more gold. Also something that requires dollars. Trump does have a deadline. The US presidential election at the end of next year. Then he cannot use an economic downturn, dissatisfied farmers or problems with the national debt.
Trump will soon have to make a super soft deal with China. If he doesn't do that and I don't think so, the Chinese will stand firm and bet on a next president. The Chinese know how to do that because they know the weak spots. Economy, farmers and national debt.
I do not expect anything from those discussions on 10 October. I think the maximum achievable will be a new appointment and some hopeful language. But more trouble makes a bigger chance.
The trade war between the US and the EU
To date, it was mainly some threats and other skirmishes. That has changed since 2 October. The Americans have been complaining to the WTO since 2004 about alleged unjustified state aid to Airbus.
The Americans were proved right by the WTO. They can now impose 7.5 billion in import tariffs on products from the EU. This has given Trump a legally permitted import tariff weapon from the WTO.
All he has to do is pull the trigger. If he does that, it is the starting signal for a trade war between the US and the EU. Because the EU has already announced that it will immediately return with import tariffs.
Boris Johnson wants a brexit anyway on October 31. The negotiations are still ongoing. There are still 2 flavors. Johnson manages to make a deal and on October 31 the soft brexit is a fact. Or there will be new elections and postponements.
Because he will not be allowed to carry out his hard brexit threat if necessary. Investors are now tired of Brexit. A soft brexit or delay may provide some relief. Stock markets can go up something on that.
The protests continue there. Last month, the Chinese doubled their troops around Hong Kong. The Chinese have waited a long time to intervene. But of course you cannot continue in this way.
Something will have to happen once. A strong intervention by China will cause a shock reaction on the stock markets. However, that will be over after one or two days.
The repo market
Since September 17, the FED has to pump money into the repo market. A good explanation why I have not seen it pass. I noticed that the FED indicated that it would continue until 10 October.
That is also the day of the trade negotiations between the US and China. Maybe coincidence. But if China has withdrawn as a buyer of US government bonds, this may explain the problems in the repo market.
Anyway the problems with the American repo market are serious. I see the lack of money (because it is) at American financial institutions as the main reason that stock markets have taken a step back. The lack of a good explanation makes my worries no less.
We may find out more about it on 10 October. Because the FED cannot continue with that daily money. Either they can sweep the problems under the carpet or there will be a structural solution (QE).
The quarterly figures
Economic numbers are becoming less and less. Then it is normal for us to see this back in the corporate earnings. Given the concerns about economic growth, investors will not have great expectations.
In advance, bad expectations are then issued per company. Shares can still rise on a forecast or better than expected quarterly report. This is going to be a season with big windfalls and big setbacks.
As a result of the trade war, many sales shifted from one company to another. There were considerable currency fluctuations. Economic growth fell sharply in the third quarter, and then the question is always whether a company has been able to maintain both turnover and margin.
All of these variables will lead to significant outliers, both positive and negative. One share will be severely punished and another will go up sharply. It is important to me what kind of signal this earnings season is going to send.
First, the expectations that companies are going to express. Do they see a dark future or is it not so bad? In addition, the number of jobs. The industry in particular is doing very badly. Mass layoffs seem inevitable there.
When presenting bad figures, companies sometimes want to present a cost reduction plan. Jobs scrapping. This employment will become very important in the coming period. Because that little bit of economic growth no longer comes from industry or the service sector.
It is only consumer spending that keeps things going. Rising unemployment and that last pillar in the economy is also collapsing. Then a recession has become inevitable. More and much more central bank support is then necessary.
The ECB meets on 24 October. The FED on October 30. Recent economic figures all indicate an increasing deterioration. The interest rate in the EU is already so extremely low that it is unlikely that it will become further negative.
The ECB has already launched a new QE. I therefore do not expect a large firework from the ECB. I do, however, expect them to come up with something. Probably with somewhat smaller support packages for banks, for example.
The FED is a completely different story. The American interest rate is still at a reasonable level. The FED has plenty of room to substantially reduce that interest rate without any problems. I certainly expect a reduction of 0.25%. But 0.5% also have a chance.
Then there is the repo problem. US financial institutions are too short of cash. The FED already indicated in September that a QE will probably be needed. I think that QE will certainly come.
Question is then only for what amount per month. If the Fed is going to do more than the ECB and I expect that, the dollar will fall. That will be excellent news for the gold and silver price.
The extent to which stock markets are going to increase with more stimulation depends mainly on the QE monthly amount that the FED will come up with. American financial institutions are short of money.
Is one just going to close this gap or let the money splash against the skirting boards again? That is the question. Because only if the market is going to be flooded with money can stock markets rise fast.
The gold and silver price
The gold and silver prices often want to move because of the trade war. Other political tensions can also cause movement. Yet these are not the kind of things that the gold and silver price should have.
More is needed for a powerful bull market. An economic crisis or the chance of it causing central banks to have to stimulate extremely much is the way to get a powerful gold and silver bull market.
If the central bank stimulates inflation to rise, this certainly helps. A lower dollar also gives a lot of support. The lower dollar will certainly come. The US government debt is just too high. In addition, the FED has all the space and necessity to substantially reduce interest rates.
It is now going so badly economically that central banks cannot help but take action. That will give a strong boost to the silver and gold bull market. I expect that the gold price will be above $ 1600 even before Christmas.
If you are considering taking positions in gold mine or silver mine shares or you want to buy extra, then the beginning of October is the time. Due to the temporarily lowered gold and silver prices, the shares are generally somewhat lower than a month ago.
The mining companies will present figures at the end of this month and next month. Given the higher gold and silver prices in the third quarter, those profits will have increased sharply. In addition, the FED at the end of October.
If the Fed starts to lower interest rates, comes with a QE and the dollar starts to fall as a result, the gold and silver prices will rise very fast. If you want to know in which gold mine shares I invest: click here. For silver mine shares: click here
The stock market forecast for this month
A lot of things are going on now. Trade wars in combination with sharply weakening economic growth. That does not give a nice picture. In addition, we still have uncertainties about the Brexit and Hong Kong.
I have not even discussed the Middle East and especially Iran. That situation is completely unpredictable. One thing can be said about it. The current economy cannot use a towering oil price.
Then the earnings season also starts. I expect large pluses per share but also minuses. Stock markets will start to move from day to day. But I think we can save the case with "better than expected". Tthis earnings season there is still a sector that I am a bit worried about.
The banks and especially the American banks. Because that American repo problem indicates that something is going on at those American banks. Given the bad start of the month and all the problems that are going on, I expect the first weeks to go moderate to bad.
A neat, soft brexit deal can lead to improvement. Escalating trade wars for a deterioration. We are also simply dependent on the central banks at the end of this month. If they come with a lot of stimulation, that will be the starting point of the end-of-year rally.
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The monthly forecast for the AEX
It's going to be a month with a lot of bumps. Partly due to the earnings season and many other things that play a chance of compelling news almost every day. Volatility will be high in October.
I expect few windfalls in the beginning and the middle of the month. Only the brexit could positively surprise. Central banks can provide relief at the end of the month. They must then (especially the FED) come with substantial support packages. Because the time of fooling around is over.
The industry already has a major problem. Growth in the services sector is falling sharply. Then it is now time to stimulate extra. Because otherwise the last pillar under the economy will also fail consumer spending. If that happens a recession can no longer be prevented.
Naturally, central banks also see this. I therefore expect a lot more stimulation at the end of this month and therefore a higher gold and silver price and also higher exchanges. The FED will give the go-ahead for the end-of-year event.