"Risk comes from not knowing what you're doing." Warren Buffett
Have you invested without having a real idea of what’s going on with your money? Or, do you want to invest but are afraid of losing your savings?
The first rule of playing the stock market without getting your fingers burned is to stay informed. And don’t worry: it's easier than it seems.
2019: positive or negative year?
A good starting point is to keep in mind that 2019 is proving to be a positive year.
February, as well as part of January, showed rather generous returns for those who invested in the stock market. The main indices of the American and European stock exchanges closed the month on a positive note.
In simple terms, this indicates that the economy is growing (not by much, the average increase in US and European indices is about 3%) and that investments are paying. Which, in turn, is an indicator that industry and businesses work. Good news, no?
In theory, yes. But it’s still a little early to be sounding a victory march.
What’s the value of gold?
There lies a thorny problem.
Although the 2019 numbers have been good up until now, investors are still rather cautious. A tangible sign of this caution is the fact that the values of the shelter par excellence are returning: gold (very high in February, down in the first days of March).
It indicates lack of trust in the market, as traditionally, the value of gold rises when investors don’t trust what may happen in the coming months and then they take precautions to buy a good that, by definition, never loses its value.
What role does politics have to play?
The root of all this caution is without a doubt: political uncertainty (don’t make that face!). This doesn’t mean that the markets are for or against a particular ethos or political leader: quite the opposite in fact. The markets have no allegiance, but they tend to flourish when there is political stability and suffer when there is not.
At this point in history there are three things to worry about in terms of the market.
- The US/China trade war
- The European elections
In the eyes of the markets these are three equally uncertain situations and are equal harbingers of the type of turbulence we discussed earlier that bring about market loses.
In the case of both Brexit and the European elections, the markets especially fear the fact that there is no clear outcome in place (the stance on Brexit is still as clear as mud with only three weeks to go until zero hour).
The US/China trade war is slightly different. Namely, because in this situation there is a clear ‘winner’ as far as the market is concerned – namely the end of hostilities - and so they can work on ‘pushing’ for this outcome.
USA vs China
For those who may have missed what’s been going on here, we’ll take a few steps back. In 2018 US president Donal Trump imposed a series of trade duties on goods arriving from China. This has led to an increase in the prices of Chinese products sold in the US, and therefore a decline in their market. In turn this led to a bitter Chinese reaction, who imposed the same tariffs on American goods entering China.
Obviously, all these tariff are not good for trade and resulted in the fall of sales for many American products. Above all, giants like Apple - whose shares lost about $700 billion of market value in a few hours - suffered.
Now it seems that the channels of dialogue between the US and China have reopened, and the two countries seem to be starting peace talks, even if the terms are not yet clear to the rest of the world. Of course, the markets are pushing for reconciliation, and they have made this very clear, showing signs of recovery as soon as the spectre of peace talks between Trump and Xi Jinping loomed on the horizon.
What awaits us in March? Stay tuned ;)
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