What is your biggest concern now

Klaus Kaldemorgen: The corona pandemic is no longer the main concern of investors

Therefore, the so-called blue sky scenario had to serve as a justification. The blue sky over the stock markets is, to stay in the language of meteorologists, a stable high pressure area. It obviously has an incredibly calming effect on the minds of investors, who like to leave the umbrella at home in this weather.

The Blue Skye scenario is based on the following narrative, which is now shared by most investors:

  • The interest rate level of the most important central banks is currently zero or even negative. Even with rising inflation, the central banks will maintain this interest rate for a long time, as otherwise the rising national debt would lead to a crisis of confidence. A consolidation of the national debt would also stall the economic recovery at the end of the corona crisis.
  • In this scenario, stocks are not only current, but also have no alternative in the future - at least compared to fixed-income investments. Shifts benefit the stock market just as much as the liquidity created by the central banks.

Even if this narrative has now become the consensus of investors, it doesn't necessarily have to be wrong. A dividend yield of 3.7 percent from a German telecommunications company is always more attractive than a ten-year bond from the same company with a yield of 0.45 percent.

Subject: Columns by Klaus Kaldemorgen

Nevertheless, one should critically question what could shake the narrative. The development of the inflation rate is ultimately the Achilles' heel of the "dream scenario". This was shown by the allergic reaction of the stock exchanges to the interest rate test balloon by US Treasury Secretary and ex-Federal Reserve boss Janet Yellen last week and the US inflation figures on Wednesday.

Should inflation hold this level, the central banks will possibly hold still on the interest rates, but nevertheless cut the bond purchases significantly. The consequence would be sharply rising yields on long-term bonds.

Since the ten-year returns represent a kind of benchmark for valuation on the stock market, companies' profits would have to rise significantly in order to compensate for the valuation pressure. For some time now, the coronavirus pandemic has therefore been replaced by the fear that the bubble in the bond markets could burst as the main concern of investors.

More:These warning signals are unsettling investors in the stock market.

Klaus Kaldemorgen, born in 1953, is one of the best-known stock market strategists in Germany. For over 35 years he has been working as a fund manager for DWS, where one of the investment funds even bears his name.