Marketing Info

The Stock Market’s Fall Could Be the Next Stagflationary Shock

Rising inflation was already a major concern for the equity markets. Russia’s attack on Ukraine means those concerns just got bigger.

Vladimir Putin’s move to invade his neighbor caused price increases for everything from oil and food to natural gas and aluminum, spikes that could stifle economic activity and exacerbate market devastation. The European Union and the US are set to announce a new package of sanctions on Thursday that will curb trade between the West and one of the world’s biggest commodity exporters.

Shares around the world fell, with major benchmarks in both Europe and the US now firmly in correction territory and the Nasdaq 100 index entering a bear market.

“The effects of recent events can rightly be described as a recession – rising prices coupled with a decline in economic activity,” said Thomas Boeckelman, head of portfolio management at Euroswitch, which hit equity markets in the 1970s. Draw parallels with affective malaise.

Markets have already rolled this year on signals from the Federal Reserve and the European Central Bank that they will tighten policy more aggressively than expected in an effort to contain inflation. Any further pressure on prices can only add to such concerns.

Goldman Sachs Group Inc. “It’s a really bad time for the markets, because for the past year we’ve been trying to deal with tough conditions,” strategist Christian Müller-Glissmann said in a Bloomberg TV interview on Thursday. “And now you’re dealing with a growth shock, particularly for Europe but much more globally.”

With interest rates at rock bottom, and asset purchases maxed out, central banks have little room to maneuver right now. Extending or tightening stimulus measures could add to price pressures, while stepping on the brakes could accelerate a recession, while little could be done to address the roots of the inflation spike.

“It will be extremely difficult for central banks to manage a situation where inflation is rising, but growth is also at risk,” Carsten Romheld, Fidelity International market strategist, said over the phone. “It’s not a good environment for the stock to expect a quick recovery.”

European stocks are looking weak. “The crisis in Ukraine is showing the fragility of European economies, in the sense that they are dependent on everything, starting with energy,” said Alessandro Tentori, chief investment officer at AXA Investment Managers. “This fragility could be negative for the relative performance of Europe, particularly China and the US.”

finding opportunities

Still, optimists believe a worst-case scenario can be avoided and say a knee-jerk reaction to the unfolding military standoff could create opportunities for investors to be able to hold their nerve. .

Portfolio manager Oliver Sharping said, “We are not saying immediately buy whatever is down today, but there are certainly opportunities and opportunities to buy attractive assets under their long-term fair value in such a large-scale event. Will be.” Bantlon.

grounds for optimism

For Tai Hui, chief Asia market strategist at JPMorgan Asset Management, the basis for optimism includes accumulated consumer savings over the pandemic, and the fact that American and European consumers now spend less of their disposable income on basics like food and energy. .

“A sharp rise in food and energy prices would still represent a drop in disposable income, but it is not detrimental to overall consumption,” Hui said. “Inflation risk can be managed if timely supply solutions can be found to deal with disruptions caused by the Ukraine conflict,” he said.

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