Why does the stock market rise in the face of an economic crisis?

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In this general environment, it should be noted that the selective index of Spanish equities has become 9,500 points levels. Un referente que de todos modos hace muchos meses que no se ve y que be cual sea el caso representa el más alto de este año. Exactamente cuando los síntomas de una recesión económica son más evidentes que nunca. Donde el Ibex 35 cerró la sesión con ligeras subidas y se situó muy cerca de los 9.400 puntos, en una sesión que ha estado marcada por las dudas generadas en torno al Brexit.

In other words, the health of the stock markets is probably not bad. If not the other way around, there is hope that it can do moderately well in the coming months. A fact that is not explained by a large part of the small and medium investors since a good part of them have abandoned their positions for fear that the financial markets could fall with some violence faced with the fact that a new economic crisis has arrived. Even with values that have appreciated above 5% in the last trading sessions.

Repurchase of shares

One of the facts that explains with great clarity that the stock markets have not collapsed in this new economic scenario is that the companies that are listed on the stock exchanges themselves are buying back their shares due to the liquidity that the financial markets are providing them as a result of the measures promoted from the European central bank (BCE). En algunos de los casos, han aprovechado las bajadas de este verano para crear una cartera de coches con precios más competitivos que antes. El efecto principal es que su potencial de revalorización se ha incrementado a través de la compra de activos financieros a un precio preciso por debajo del precio target de las acciones.

This has been a very common practice among the companies that make up the selective index of Spanish equities, the Ibex 35. From banking groups to insurance companies, going through electricity and telecommunications y prácticamente sin excepciones. Este hecho ha permitido que en todos los casos se haya impuesto y se esté imponiendo la presión compradora sobre las posiciones cortas. Y como resultado de ello, los beneficiarios de esta strategy de inversión son los propios inversores que han tomado posiciones en los mercados de renta variable. Esto puede aclarar que la tendencia de los mercados de valores sea más o menos alcista en estas semanas de negociación.

Economic crisis: low interest rates

Another cause that explains the evolution of financial equity markets is the move by the BME to lower interest rates in the euro zone. It is a reality that is benefiting stocks have recovered in this period, as we are seeing, not only in the national stock market but also in those around us. In other words, low interest rates are undoubtedly beneficial for the bullish development of equity markets. Even when it is at very moderate levels as we can see in each of the trading sessions. But whatever the case, it is another factor that is helping the buying pressure to be imposed clearly.

While on the other hand, another piece of information that this trend contributes to is that low rates have come to stay for a long time. In other words, it won't be for a few months, not even years, and this is being discounted by the equity markets. It is a situation that is unprecedented and that of course there have been no other historical periods in which it has developed. And this is taken advantage of by strong hands in the markets that have decided to take positions more aggressively than usual. Because they believe that they will be able to make their investments profitable in a more or less reasonable period of time.

Financial markets anticipate

There is a third reason, no less important, to clarify this situation in which the equity markets find themselves. It has to do with financial markets anticipate what will happen in the next few years. This has always been the case and will continue to be the case in future business years. In this regard, it may indicate that the negative effects of a recessive scenario have already been discounted and it is enough to know that in recent years the stock markets have had negative results, in some cases with percentages that have approached 10%. Well, this theory could indicate that the current rises in the stock market, even when moderate, would be interpreted as a way out of this scenario so little desired by small and medium investors.

On the other hand, it should be noted that the stock markets anticipate what may happen after the economic recession. In a way, they would indicate that the crisis in the international economy would have a very limited duration and watching her come out. In other words, it would be a sign of optimism that they would be giving to the equity markets and that could be taken up by small and medium investors to make profitable their contributions in these high quality financial assets. From this point of view, it would be a clear signal to open positions to make our positions on the stock market profitable.

Cutbacks in recent months

In another vein, it is also necessary to highlight that although the current financial crisis that the main economies of the world are going through is affecting all sectors and stock indices, It is exactly the banks and insurers that are most sensitive to these falls, since they are certain financial investment entities that have needed the rescue of the national monetary authorities. These sectors have had falls, in some cases higher than 5% in a single session, including some international banks have lost practically all their market value.

It is a sector, therefore, exposed to an additional risk that can lead to further falls in its price and, from which it is advisable to stay out of the way, at least until the storm that is hitting the stock markets at the moment ceases. When it comes to securities generally characterized by their low volatility and the solidity they present in their stock market evolution, they are currently behaving drastically, with strong oscillations that can reach 10% between their maximum and minimum prices and, with sales. massive on the part of the investors, something unusual in this type of values, until now.

From this investment approach, it cannot be forgotten that it would be a clear sign of re-entry into the equity markets with the aim of profiting from positions. Through one or another investment strategy. From this point of view, it would be a clear signal to open positions to make our positions on the stock market profitable. Even with certain risks that these operations have added.

Trading in the stock market

The Spanish Stock Exchange traded in equities a total of 32,487 million euros in September, 7,1% less than the same month of the previous year and 15.9% more than in August, according to data provided by Bolsas y Mercados de España (BME). Where it is shown that the number of negotiations in this analyzed period was 3.07 million, 3.2% more than in September 2018 and 1.1% less than in the previous month. Where it maintains an accumulated market share in the contracting of Spanish securities of 70.5%. The average range in September was 4.87 basis points in the first price level (10.8% better than the next trading venue) and 7.03 basis points with a depth of € 25,000 in the order book (a 30.9% better).

While on the other hand, and according to BME sources, trading in the secondary fixed income market amounted to 24,589 million euros. This figure represents an increase of 29.13% with respect to the volume registered in September 2018. The total contracting accumulated in the year reached 269.642 million euros, with a year-on-year growth of 81.7%. The volume admitted to trading on the primary fixed income market was 20,731 million euros, with an increase of 29.5% compared to the previous month and a decrease of 25.6% compared to September last year. The outstanding balance grew by 2,94% in the year and reached 1,600 million euros.