The US stock market to face hard times
In February, stock markets were in the doldrums amid the US intention to raise duties on the aluminum and steel imports. Then followed the trade sanctions against China, which only made the situation worse. However, on March 26, after the media reported a progress between the countries, S&P 500 grew instantly by 2.7%. Not for long, though. On 27 March, many stock indexes showed a turndown again.
Firstly, because the trade war between the US and China continued further despite the progress promised. Secondly, the stock turndown is linked to the appointment of John Bolton, the US National Security Advisor. He is notorious for his hardline stance towards the US foreign policy, which many experts believe to result in deteriorated relations with North Korea and inflame the situation in the world overall.
What should stock markets be prepared for?
Now, pessimism prevails in this segment. The last year’s confidence in the synchronized economic growth, the signs of which did take place, is now followed by an anxiety. Central banks now refuse from certain monetary incentives used to support the market since 2009. That said, the situation does not seem to be bloomy anymore. There are more concerns that the economy will decline. The economic surprise index has already decreased substantially as compared to the previous year. Another red flag is the copper market, where the price for copper has declined by 9% since the beginning of 2018. Not to mention that copper is one of the most susceptible to economic factors.
Manufacturing companies are not the only ones to take the blow with the IT industry standing alongside. Therefore, S&P 500 Information Technology that shows the situation around the IT sector has declined by 5.2% in March alone.
All these factors altogether develop the overtone on stock markets. The investors’ confidence that the situation will improve in a year, and that the business cycle will get stronger, is fading with each day. According to Absolute Strategy Research (ASR), 43% of investors and strategists hold pessimistic views. That is 55% less than in the Q1 2017.
Investors believe that the probability of shares hitting above that mark next year is 58%. However, it is too early to celebrate. The Barclays’ Equity-Gilt Study reports that the stocks of US companies have had a very random growth since 1926. Yields increased only in 64% of the cases. Meanwhile, investors are expecting the economic climate to deteriorate soon. The yield and inflation are projected to grow simultaneously over the next 12 months.
It should also be mentioned that the real growth rate of the global M1money-supply measure slowed sharply from 9% to less than 4%. Experts also noted the narrowing gap between short- and long-term interest rates. In the past, such events served as red flags of an upcoming economic slowdown.
The conclusion is the following: investors should be alert. And to plan their strategies for a rainy day. Even if the aforementioned factors eventually prove to be a false alarm, it would not hurt to play it safe.
This post is also available in: Russian