Will the stock market fall? Probably not

The risk of rising interest rates has returned to the stock market. When the federation is at war with inflation, traders are worried that the era of easy money is coming to an end. As a result, volatility has passed in the roof and review duplication has squeezed out the most ‘bubble’ pockets in the market. The turmoil may continue, but with the economy still in good shape and strong buying back, this storm could eventually be a gift for long-term investors.

He feeds, he feeds

Ironically, the plague was a blessing to equity markets. Governments and central banks have joined forces to fight the crisis, and when excessive fiscal spending is combined with rock low interest rates, that is rocket fuel for risky assets.

 

The easiest way to think is through a material perspective. With central banks depreciating and trucks buying government bonds, production on those bonds has collapsed and investors looking for juice returns have to look elsewhere. That makes money managers more vulnerable to the stock market, which in turn increases prices.

Now this process is moving in the opposite direction. The declining inflation has changed the game, and central banks are scrambling to increase interest rates to cope with inflation. And with most economies recovering, governments have begun to recoup their debt to control debt levels.

As a result, markets suffered huge sales losses. Technology and ‘growth’ stocks have been the biggest hit, as higher rates have a greater impact on the profits of generally less profitable or less profitable companies. Anything that is expensive is basically taken to cleaners.

Good news

On the bright side, there are many reasons to be bright here. First of all, the world economy is very strong. What we have seen in recent times is not a response to fundamental economic changes, but rather a reversal of the value proposition of traders in a tight monetary policy because most economies have the capacity to withstand this.

In fact, investors may already be far behind. Currency markets are rising six times in the federation this year, which is probably in line with expectations. With government spending declining, supply chains finally becoming normalized and strong year-on-year comparisons beginning in March, the U.S. inflation rate is likely to rise soon.

When investors see the first signs of ‘high inflation’, these superpowers can push back and push the product and breathe new life into the equity markets. Politics comes to the same conclusion. Democrats will lose Congress in the midterm elections in November, meaning there will be no tax hikes in the next two years.

It is another encouraging sign. Many of the ‘surplus’ items in the market have been washed away. Crazy trading companies have collapsed and a sense of decency has returned. See outbreaks like Zoom: You’ve seen their stocks drop by 70% higher than ever. The same is true for MEM stocks, blank check companies (SPACs) and some quality businesses like Netflix and Facebook.

Finally, let’s not forget about purchases. Companies In 2021, they bought their own stock rapidly, reducing the total number of shares and improving the revenue per share, eventually increasing the value of the stock. With most stocks now trading lower than last year, corporate stocks can accelerate this process, which is a strong and sustained source of demand.

Bad news

Of course, to provide an overview, we must also list the bear. The biggest disadvantage is that inflation is high. Even though supply chains are normalizing, it will force central banks to push higher prices. That will increase productivity and pose a risk of economic collapse on the map.

Another major concern is the slowdown in the economy as fiscal juices run out and cause investors to post recession, although this time the federation has recovered from a sharp rise and mitigated some of the negative effects. .

Revenue growth may be another area of ​​concern. While revenues are still growing at a healthy pace, the percentage of companies hitting analysts’ estimates during this reporting period has decreased and they have won by a small margin. This can still be a problem when combined with ‘expensive’ reviews in history.

With the tensions around Ukraine and Taiwan, geopolitics is back on the radar, albeit with little political focus on markets in general.

The big picture

After all, markets are in a state of turmoil as central banks and governments reduce their incentives. This indicates that when Wall Street learns the existence of endless fluids, variables and sharp falls can be a very frequent occurrence.

But the economy is not falling into the abyss, inflationary pressures may already be too high, and corporate returns will remain a major driving force in the market crash, with a smooth surface below prices.

The main thing? Volunteers can take advantage of strong support opportunities to reap the benefits of long-term growth, especially in high-quality companies that trade in discounts.

Markets tread and scream before taking their drugs, but they may be able to afford them at a slightly higher price, unless there is an economic downturn. After all, there is still no real alternative.

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