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• Despite the volatility, there is no alternative to equities
• Deutsche Bank sees little return on the S&P 500 through 2021
• The outlook for 2022 also depends in part on the outcome of the US election
For a long time there was no alternative to the stock market for investments. Historically low interest rates drove investors worldwide into the capital markets and brought one high after another to the world’s largest indices. The longest bull market in history seemed endless. Then came the corona pandemic and the international stock markets experienced historic slumps in March, which within a very short time wiped out the price gains of years. But the strict contact restrictions and local lockdowns could not bring the markets to their knees for long. Hopes for an early corona vaccine and generous financial injections from governments and central banks helped the stock markets get back on their feet. Some, like the technology-heavy US index NASDAQ Composite, even managed to set new records despite the corona crisis. If the experts at Deutsche Bank have their way, however, investors should not rely on being able to make high profits on the stock markets in the long term.
Deutsche Bank has gloomy outlook for US equity market
According to MarketWatch, Deutsche Bank strategist Tuan Huynh stated in an outlook for the broad US S&P 500 index for the years 2021 and 2022, that market participants should be prepared for the fact that the times of high returns are over for now. The credit institution sees the index at 3,300 points by the end of September 2021, which corresponds to an increase of 0.92 percent compared to the closing price on October 30, 2020.
There is still no alternative to stocks
That said, stocks as a popular investment option are likely to be far from over, according to Huynh. Despite the volatility of recent months and falling prices in response to the rising number of corona cases and the growing fear of renewed lockdowns, the low bond yields and interest rates would continue to attract investors to the capital market. However, Huynh would notice that many investors would be more interested in securing their prosperity through greater diversification and not increasing it at any cost. Although they would want to invest more in higher-yielding investments again, they would not be ready to immediately plunge headlong into risk: “Our customers believe very strongly that interest rates will stay low for longer and for this reason they really need something It’s not like they’re converting 50 percent of traditional government bonds straight into corporate loans, junk bonds, emerging markets, or stocks, “Huynh said, according to MarketWatch.
US presidential election has a say in economic development
According to Deutsche Bank, where the S&P 500 will go by 2022 also depends on the outcome of the US presidential election scheduled for today. This is where the incumbent President and Republicans meet Donald Trump and the Democrat Joe Biden opposite. Both would have different economic and tax plans that could affect the US economy differently. Challenger Biden is planning to introduce a higher corporate tax, but the finance house is assuming that this will not happen until 2022 due to the current weakness of the US economy. It therefore predicts a target price of 3,230 points for the S&P 500 this year. EPS is expected to be $ 170 per share in 2022.
Should President Trump succeed in winning the election, he should continue to push ahead with the tax reform he has enacted, which, according to Huynh, should benefit tech companies in particular. Accordingly, the Deutsche Bank expert predicts an EPS of $ 180 for 2022.
Two risks not yet factored in
Nevertheless, according to the strategist, there are still two risks that the market has not yet prepared for. On the one hand, it is completely unclear what will happen if President Trump does not recognize the election result. After all, in response to multiple inquiries, the Republican has not yet clearly ruled out this possibility. In addition, in the course of this election, more Americans than usual took advantage of the postal vote, which lengthens the counting of votes and in turn gives Trump the opportunity to choose himself the winner.
On the other hand, according to Deutsche Bank, the possibility of a new lockdown in the USA is not yet factored into their outlook. “If we see a scenario similar to that in March or April, then this has clearly not yet been priced in, because banks like us will first have to adjust our own GDP forecasts downwards, not just for this year, but maybe even for 2021, “says Huynh. In any case, investors should be prepared for one or two surprises in the market as long as the corona crisis lasts.
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