How crazy is the stock market? – Business

Carnival is in a week, and in Cologne the revelers will be in charge again. Jeck is another word for “crazy” – a word that springs to mind for many people when they consider current stock market activity. Share prices have risen so sharply since the beginning of the year that the German share index (DAX) is only around four percent off its all-time high. And this after a year that many people perceive as the worst they have ever experienced: there is war in Europe, there is a massive energy crisis, there is the highest inflation in 51 years, there is fear of a recession. You can ask yourself: How jeck is she stock exchange?

An attempt to understand the processes: The first glance is an economic one, which asks what the stock market is at its core and what basically moves the share prices. The stock price reflects a company’s value, which depends on its ability to generate profits. It is always about future profits. Anyone who invests in a company hopes that it will do well in the future. This also applies to the loan that a bank gives to a company. Doing business without this speculative element is unthinkable. Investors try to predict what will happen to companies in the future. That is why it is said that the stock market is always ahead of the development of the real economy by half a year to a year.

This is important in order to understand why the situation for stockbrokers is no longer as bad as it seems to many citizens: They have ticked off the bad year 2022 and they now see that things will improve again in 2023. The feared energy shortage in Europe has not yet materialized, inflation is on the retreat, which means that interest rates are unlikely to rise too much, and the danger of a recession seems almost gone, which means that companies will continue to make profits in the future make. Just as they did in the bad year 2022: VW reported an operating profit of 22.5 billion euros on Wednesday, 12.5 percent more than the year before.

It looks as if investors are dancing on the graves of war victims

This draws attention to a second aspect that illuminates the function of the stock exchange from a moral point of view: VW is an export-oriented company that sells its automobiles in all parts of the world. The sales markets in Russia and Ukraine only play a minor role for him. In people’s minds, however, the Ukraine war, which brings immeasurable humanitarian suffering, is a terrible event. It is inconceivable to them how it can be that the stock market – i.e. global investors – is not impressed by this. For many, it’s proof of the stock market’s cynical or immoral nature: it seems like investors are dancing on the graves of war victims.

The better word, however, is “amoral”: The stock market knows no morality, it only looks at how companies’ profits will develop in the future, worldwide. From this point of view, the Ukraine war is only a regional conflict that will hardly affect the further growth of the world economy – as the profits of the global corporation VW show.

Investors may be overly optimistic. The stock market is always six months or a whole year ahead of real economic developments. This means that they can be wrong even if reality doesn’t turn out the way they expected. In stock market jargon, this is called a “correction”. Stock market doyen André Kostolany has coined the image of owner and dog: On a walk, the dog (the share prices) will always run ahead of or behind the owner (real developments), but in the end they return home together. This means that the stock market can temporarily go haywire, but in the long term it reflects the world’s economic development one-to-one. You will only know in six months or a year whether the stock market is “jeck”.