Dividends and Supply squeeze on global stocks and bonds unlikely to ease in new year

Stocks have done well over the past number of years and there are reasons why they could continue their run. The most important reason is interest rates which Central Bankers around the world have kept low, which means the alternative to bonds is stocks. Another reason is simple simple and demand.

In an article by Sujata Rao of Reuters, investors are competing against companies doing buy backs and central banks trying to ensure the economy keeps running through the pandemic.

Dealogic shows a number of high profile IPOs has raised over $1 trillion in new equity. On the over side of the coin was mergers and private equity deals which took shares off the markets.

The issue with the bond market is the biggest buyer is the Central Bank. At the end of 2020, Central Banks own half the sovereign bonds in Britain, the Euro and Japan.

JPMorgan analyst Nikolaos Panigirtzoglou estimates the net equity demand/supply match next year around $1.1 trillion. He is expecting demand for shares to increase by $600 billion, while supply drops by $500 billion as buybacks and private equity led leveraged buyouts recover.

Buybacks of stock was held lower by federal regulations, which restricted the banks from buying back their stock, however in 2021, the Federal Reserve is allowing US banks to buy back stock and a number have been announced for 2021.

A change for new IPOs is people who use the platform of Robinhood and others have increased their participation from 10% in 2019 to an estimated 40% in 2020 according to estimates from Citadel Securities.

Linking to dividend paying stocks, all things being equal when there is a supply and demand issue, good stocks should continue to do well in 2021. This means if you own a good profitable company you should be able to hold it and the value will likely climb. The alternative of buying bonds at rates about dividend paying companies is low, which means 2021 is looking to be a good year.

There are more questions than answers, till the next time – to raising questions.

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