Global stocks fell for the sixth week in a row as the risk of a recession in the United States heightened the concerns of investors who have been grappling with rampant inflation, the coronavirus shutdown in China and Russia’s invasion of Ukraine.
The FTSE All-World Index is going through its longest streak of weekly losses since mid-2008, equal in duration to the decline before the subprime mortgage crisis that led to the catastrophic collapse of Lehman Brothers. Friday’s late bounce was not enough to offset the tough sell-off earlier in the week.
The index is down 2.2 percent this week, while the benchmark Standard & Poor’s 500 Index is down 2.4 percent and the technology-dominated Nasdaq Composite is down 2.8 percent.
Friday’s rebound meant the S&P 500 narrowly avoided falling into an official bear market, when the index is down 20 percent from its recent highs. But few investors were willing to call for an end to the recent volatility.
“When moves are so erratic, it’s really dangerous to try to put on your market timing hat and play this game,” said Matt Stuckie, portfolio manager at Northwestern Mutual Wealth Management, which manages $237 billion. “Really, it will boil down to whether or not the US economy is in a recession a year from now.”
The Fed’s efforts to fight inflation with rising interest rates have been putting pressure on stocks since the start of the year. The yield on 10-year US Treasuries has nearly doubled since the start of the year, reducing the relative attractiveness of riskier assets like stocks and affecting corporate bond valuations.
The number of US stocks dropping to new 52-week lows exceeded 4,100 simultaneously this week, the highest since March 2020. The average stock in the broad-based Russell 3000 Index is down nearly 40 percent from 52-highs week, according to Financial Times calculations.
This week, even sectors that would normally benefit from higher rates have also come under pressure. The S&P 500 financial sub-index fell 3.6 percent, as investors bet the addition to banks’ profit margins would be offset by an increase in loan defaults during the recession.
Federal Reserve Chairman Jay Powell stressed earlier this month that the central bank “will not hesitate” if it needs to take tough measures to control inflation, and this week warned that taming inflation could cause “some pain.”
New data shows price hikes barely slowed down Thus, in April, he added to fears that the Fed would not be able to achieve a so-called “soft landing” that avoids an economic downturn.
“There is only one way out of this inflationary period that we are currently experiencing – and that is a slowdown in economic activity,” said Florian Ilbo, multi-asset portfolio manager at Lombard Odier.
Growth concerns also paused the recent rise in government bond yields. The search for safe-haven assets as stocks tumbled lower the yield on the 10-year Treasury by 0.2 percentage point during the week to 2.93 percent. Lower yields reflect higher prices.
US fears are exacerbated by disappointments Updates From China, which is struggling to contain the outbreak of the Corona virus without severely hurting its economy. However, Shanghai’s CSI 300 recovered from a weak start to the week to end higher, as did the European Stoxx 600, which is less dominated by technology companies than the US market.
Some investors were optimistic that the bulk of any potential deflation had now entered asset prices. T Rowe Price, the $1.4 trillion asset manager, has been gradually building up its equity exposure after the year began to drop weight and rotated some of its holdings from defensive sectors, like utilities, to more battered areas like industries and semiconductors.
“Markets are factoring in a high probability of a very bad event happening; if it doesn’t, some of these cyclical stocks will revalue significantly, and if that happens, they’ve already priced a lot of that,”
Giroux, who runs a company Main FundsHe expected markets to remain volatile in the short term, but said he was more optimistic about the long-term outlook.
“If you wait for certainty to come back, to get total clarity, you’re going to buy things that have already increased by 30 percent.”