Stock market this week

Latest update: 18-10-2020 21:24

Support plan and business figures

Last week, investors had little notice of the increasing number of corona measures, the deadlock with Brexit, problems with corona vaccines and more US aid requests. The hopes for an American support plan and hopes for a better earnings season managed to keep stock markets high.

The American Aid Plan

Nancy Pelosi gave Republicans a 48-hour deadline this weekend. Then we will know by Tuesday (our time) whether it will be there. On Wednesday there will be another vote on another smaller ($ 500 billion) bailout plan. There has also been a dispute about that.

Anyway. This week we will know if there will be a support plan before the presidential election. 

Normally that is not going to happen. But in election time with Trump lagging behind in the polls, anything remains possible.

The earnings season

The first start last week. Not many conclusions can be drawn from American banks in view of their different business model. A lot of normal companies this week. Then we will get a better picture of the corona effects.

The US aid applications

After a long but slow decline, they rose again last week. As a result, there will be extra attention on the figure for last week on Thursday. Again an increase and there is an upward trend.

The US national debt

The US fiscal year runs from October 1 to September 30. When I talk about last year I mean the year up to October 1, 2020. The figures were published last week. The US national debt is now just under $ 27 trillion.

That number alone does not say much. So some comparisons. 4 years ago it was still around $ 20 trillion. So under Trump it has increased by 7 trillion dollars. Partly because of corona measures and largely because of Trump's fiscal stimulus (lower taxes).

Trump may show off (before corona) those nice economic figures and stock market rises. The US government has had to go deep into debt for it.

The US government's housekeeping book for the past year looks lousy. Taxes and other income amounted to $ 3.42 trillion. However, the US government spent $ 6.55 trillion.

The expenses are thus almost double the income. The $ 3 trillion deficit is $ 2 trillion due to corona support, and the $ 1 trillion deficit was already factored in. We are talking about the year that started on October 1, 2019 with about 5 months without corona.

Given the corona damage, the current fiscal year will certainly not be any better on the income (tax) and expenditure side. Obviously, US government debt is already too high and its increase is very worrying.

Then the question arises how will this be solved? Because we as investors cannot do much with that debt itself. But responding well and in good time to possible solutions can bring money.

First, the US interest. To keep the high debt still affordable, it cannot be raised for years to come. We can tick off those long-term low interest rates.

The next point is whether one can bring the debt down. This can be done by increasing taxes or limiting expenditure. The economic damage caused by corona plays a major role here. For a long time to recover, the US economy will need stimulation (support from the US government).

These high expenditures will remain necessary for a while. Increasing income by raising taxes is also going to be very difficult. Because with tax increases you slow down the economic recovery. The US government debt will therefore continue to accumulate for a number of years.

In order to keep this growing debt mountain still somewhat manageable, debts will have to evaporate. This is done by allowing inflation to rise. It is of course no coincidence that the FED has already indicated that they have no problem with higher inflation. It will come because it has to.

So what can we expect in the coming years? An American interest rate that will remain low for a long time, a lot of money printing (FED) so that the American government can borrow enough (issue government bonds) and rising inflation.

All 3 things that will put pressure on the dollar. And what will benefit the most from that? Gold and silver.

Because they have to rely on a low interest rate, printing money, higher inflation and a lower dollar. Now none of this is going to take place this week. It's a little bit from now on and for the next 3 to 5 years. Years in which gold and silver remain in a strong bull market.

The gold and silver price

This week we will know whether the US bailout plan will be finalized before the presidential election. If not, this will cause a temporary dip in the gold and silver price of maybe one or two days. Because a delay is not a cancellation.

If a deal comes, it will cause an increase in gold and silver. Anyway this week, we can leave that speculation about whether or not the support plan go ahead. I will be glad. Because all that bickering about a support plan was a short-term disruption of the bigger picture you can read above.

The weekly forecast for the stock markets

It will mainly be about the American aid plan and the company figures. In addition, 3 points that deserve attention. The presidential election campaign. Things can get tougher shortly before the election. However, it is unpredictable what will come and how this will turn out on the stock markets.

On Thursday the figure on US aid applications. And do not forget the increasing number of corona measures. Until now, that does not do much on the stock markets. However, the situation is alarming for both corona and the damage to the economy.

This can cause looking away to suddenly turn into pessimism. So be careful because the increasing number of corona measures, again with great damage to the economy, has not yet been incorporated into the prices.

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The weekly forecast for the AEX

The AEX is still within the 530-575 bandwidth. Last week, the AEX almost touched the resistance at 575. It was not possible to break it and normally a decline follows.

The first impetus for a decline came, but bargain hunters immediately picked up the discounted shares again. Given everything that is going on and the strength of the resistance at 575, a decrease still has the greatest chance.

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