Foreign media reported on Friday (30th) that the “Goldilocks” that favored the market disappeared, sending the stock market and bond market into bear markets one after another, and an economic recession has become a nightmare.
In 2022, under the pressure of inflation, countries have entered a cycle of raising interest rates and started to shrink their balance sheets. The “Goldilocks Economy” has disappeared, the Ukrainian-Russian war has broken out, and the UK has released a tax cut plan without warning, which may trigger a crisis of debt collapse. , making the global market even more turbulent, the global stock and bond markets collapsed simultaneously, and the market value has evaporated more than 46 trillion US dollars this year.
The “Gordilocks Economy” refers to “moderate economic growth and moderate inflation,” which is usually accompanied by low unemployment and low interest rates, thus favoring continued market gains.
“The 2022 inflation shock ignited an interest rate shock and now threatens a recession shock and a credit event,” Bank of America analysts said. “Peace, globalization and easy monetary policy are being met by “war, nationalism, fiscal panic, quantitative tightening, high interest rates and era of high tax inflation.”
While there did appear to be a period of optimism early in the third quarter, with the 47-country world stock index MSCI International ACWI Price Index rising 10% from July to mid-August, the devastation of the Fed rate hike soon returned, with the index rising since then. It’s down 15% since then and is down 25% so far this year for a loss of $18 trillion.
Prolonged recession expectations, coupled with plans by the West to stop buying Russian oil, sent Brent crude prices plunging 20% after a sharp rise earlier this year. The European energy crisis has sent gas prices up 18% since July, but the figure at the end of August was closer to 140%.
Meanwhile, the bear market in U.S. stocks has lasted 268 days, with a peak-to-trough decline of about 24%, although this is still relatively short-lived and mild compared to past declines.
Yardeni Research data shows that since 1950, the average duration of a bear market in the US stock market has been as long as 391 days, and the average decline from peak to trough is slightly more than 35%. Investment banks, from Bank of America to Goldman Sachs, are warning that the year-end Santa Claus market could disappear.
Olivier Marciot, head of multi-asset and wealth management investments at Unigestion, said: “The complacency about central banks turning dovish, the economy in general, the geopolitical situation has evaporated, and there is basically no hope in the markets as far as the eye can see.”
The U.S. dollar has become the preferred safe haven for funds. The ICE U.S. Dollar Index (DXY), which tracks the U.S. dollar against six major currencies, has risen by more than 18% so far this year. biggest annual drop since.
Weak economic growth, the fallout from a prolonged property crash, and sweeping anti-epidemic policies meant Chinese and Hong Kong stocks fell 15% and 20%, respectively, in the third quarter. The yuan fell 7 percent against the dollar to its lowest level since the global financial crisis.
The total value of the cryptocurrency market has plummeted from $2.2 trillion to $940 billion so far in 2022, while some Eastern European currencies have also lost around 10% as the war in Ukraine continues. Ukraine also joined Sri Lanka in defaulting, and currency and bond markets widely see Ghana and Pakistan to follow suit.
JPMorgan estimates that the VanEck JP Morgan Emerging Markets Local Currency Bond ETF has seen outflows of $70 billion so far this year. The MSCI Emerging Markets stock index fell for the fifth straight quarter, the longest bear market on record.
Wim-Hein Pals, director of Robeco’s emerging markets equities team, said: “Everything that sparked the market crash has been a spike in interest rates and inflation, and money is no longer free.”