ACTIVTRADES WEEKLY

By CHRIS ILLING

www.activtrades.bs

THE stock market year 2021 will be remembered as a good one - despite some setbacks.

Nasdaq plus 28 percent, S&P 500 plus 27 percent, the German Dax plus 15 percent - the stock exchanges meant well with investors in 2021. The current low interest rate policy, the lack of alternatives on the markets and rising inflation expectations could have further fuelled the rally.

2021 will be marked by a boom in IPOs that the world has not seen for a good 20 years. 388 companies around the world ventured into the stock market in 2021 and raised $453 billion, around two-thirds more than in 2020. It was last seen in 2000, during the New Market boom and before the Dot.Com bubble burst.

But most experts do not believe 2022 will be another good year for the markets and will primarily be shaped by inflation. The US and other national central banks have already announced they will adjust their monetary policy. For example, the US Federal Reserve wants to gradually reduce its bond purchases. It is also safe to say they will consider one or two interest rate hikes.

The exchanges are facing a tough test because the liquidity and zero interest rate policy of the central bank was an important driver for rising prices. However, several portfolio managers do not believe there will be any major upheavals.

They rather see a threat towards real estate and other assets, which institutional investors have turned to because there was hardly any interest on government bonds. The market does not expect asset managers or pension funds to switch back from stocks to bonds.

An even greater risk for 2022 is that countries could act against the tech sector. The large tech corporations have achieved an almost monopoly-like position with high returns. China has already taken the first steps - with corresponding consequences for share prices.

Investors are worried about inflation in the last few months of 2021. Even if the European Central Bank (ECB) tries to downplay the inflation trend and declared the high rate of inflation in the Euro area should be considered “temporary”, many economic experts reckon the issue will not become less important in the near future. In the US, investors are closely monitoring inflation, where prices are increasing across the board alongside the country’s rising labour costs.

You are probably familiar with seasonality recurring patterns that occur at a specific period. These patterns are particularly reliable the more frequently they appear. The year-end rally is one of the best-known seasonality and describes the phenomenon known among traders and investors that share values tend to rise at the end of the year.

Of course, the Christmas season is not innocent of the climbing party. A happy mood creates a buying mood. And bonus payments and Christmas bonuses are sometimes invested directly into the market by investors.

Another important and interesting relationship that we use in intermarket technical analysis is the relationship between stocks and commodities. In the past few weeks and months, raw material prices have risen noticeably, a result of rising energy prices. This has fuelled inflation. Commodities such as gold, oil, corn and frozen orange juice are investment alternatives that have recently been in great demand.

The prices for natural gas and coal could continue to rise in the short term given low inventories, according to the latest World Bank report on the commodities markets.

Cryptocurrencies have come to stay and will, therefore, probably also be in the focus of investors in 2022. Inflation development is likely to play a role here because Bitcoin & Co. are increasingly said to have anti-inflation properties. The possible introduction of digital counterparts for Euros and the US dollar are not expected in 2022, but the discussions about this could continue to pick up speed. Possible regulatory steps for trading of crypto currencies will probably turn-out to be market movers.

NFTs, non-fungible tokens, will probably continue their triumphant advance in the field of digital assets in the new year. ARK Invest boss Cathie Wood sees great potential in the new trend asset and she’s not along as companies such as Adidas and Epic Games are apparently exploring steps in this segment.

2022 will be anything but boring for the savvy investor.