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FERI Markets Update March 2020 - Too Early for Stabilisation: Markets Remain Unstable

Bad Homburg, 03/23/2020
from Dr. Eduard Baitinger, FERI AG
  • Corona crash fastest crash in stock market history
  • Technical recovery only of short duration
  • Systemic risks are increasing

The corona crash has led to an unprecedented sell-off on the stock markets in a very short period of time. Following the massive price losses, brief countermovements have recently raised hopes of a speedy recovery. However, it is probably still far too early for this - the capital markets remain extremely unstable for the time being. Comparing the current price slump with earlier crashes, three particularities stand out.

Rapid Plunge from Historic Highs

The S&P 500 reached a new all-time high as recently as February 19th of this year, only to drop 30 percent three weeks later. This was the fastest crash in American stock market history. The DAX also plummeted at record speed by around 40 percent. This type of "sudden death" is unprecedented in stock market history. Even the October crash of 1987 was preceded by two weak stock market months. Before 9/11, the mood on the stock markets had already been clouded for some time, and after only 11 days, the markets had recovered then.

"Buy the Dip" Strategy Still at High Risk for the Time Being

In principle, setbacks always offer the opportunity to re-enter the market at more favourable prices. This behaviour could also be observed in the past few days, when the stock markets turned positive in the meantime. Apparently, the first strategic investors are taking advantage of the current market environment for long-term investments. Nevertheless, share purchases along the lines of "buy the dip" are associated with major risks in the current very confusing situation. In the event that the stock markets continue to slide, investors are threatened with high losses.

Hardly any Leeway Left for Monetary Policy

Whether the central banks will again be able to stabilize the financial markets ("central bank put") is anything but certain. For example, the latest interest rate cuts by the US Federal Reserve caused uncertainty and provoked price losses instead of supporting the markets. It also remains to be seen whether the ECB's announcement to buy government and corporate bonds for EUR 750 billion via its new "PEPP" program will have a lasting effect.

Outlook

In recent weeks, all markets have been under considerable selling pressure. Even assets that were considered safe (AAA bonds, gold) were liquidated to compensate for losses in other areas. Whether and to what extent the sell-off will continue depends crucially on the course of the CoViD19 epidemic in the USA. American cities such as New York are facing a massive wave of new infections and could literally be overrun. If the number of infections in the USA continues to rise sharply, as is currently expected, a second wave of sales could be imminent. Systemic risks - from loan defaults to a new financial crisis - would also increase significantly. US assets, traditionally valued as a haven of stability, could then come under considerable pressure. As long as this scenario threatens, investors should strictly limit their risk exposure. At the same time, a high degree of flexibility is required. After all, as soon as the rise in global CoViD19 infections slows down significantly for the first time, significant market recovery could be expected.


About Dr. Eduard Baitinger

Dr. Eduard Baitinger has been Head of Asset Allocation in the FERI Group since 2015. He is responsible for quantitative asset allocation at FERI Trust, where he also manages and coordinates numerous research projects. In close coordination with the FERI Board of Directors and Chief Investment Officer, Dr. Heinz-Werner Rapp, he also represents the investment strategy of the FERI Group and its communication to clients and customers of FERI.

Before joining FERI, he was a research assistant at the University of Bremen and financial analyst for an asset manager. In 2010 he completed his studies at the University of Bremen, accompanied by a stay abroad in New York, as a graduate economist. In 2014, Eduard Baitinger received his doctorate with distinction on new approaches to quantitative asset management. Dr. Baitinger publishes regularly in academic journals and acts as academic reviewer.


About FERI AG

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 39.2 billion under management. A total of EUR 8.5 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



Media relations contact

Katja Liese

Member of the Management Board

Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192

F +49 (0) 6172 916-1192

presse@feri.de

FERI AG

Rathausplatz 8-10

D-61348 Bad Homburg

Dr. Eduard Baitinger
Dr. Eduard Baitinger
Dr. Eduard Baitinger
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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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