Deceleration, recession or stagflation? A plunge towards economic entropy is looming. Sit tight, buckle up, as the world braces for market disorder.
Tumultuous trading
Recessionary fears have prompted Wall Street’s benchmark S&P 500 index to tumble more than 20% since January, prompting widespread uncertainty.
With market volatility at an all time high, erratic maverick behaviour is a persistent concern across global markets. As the world navigates unchartered post-pandemic territory, compounded by a dumbfounding war, investor sentiment has sparked mainstream interest — capturing public opinion in comical ways.
Take the recent crash in crypto and non-fungible tokens, with Forbes reporting a monumental plummet in major cryptocurrencies, Bill Gates drawing similarities to the ‘greater fool theory’, and frantic fortunes spent on digital apes galore.
Further to this, the evolving blip in Blockchain confidence is unmasking inherent flaws (cybersecurity woes, shadowy ‘darknet’ conduct) alongside structural dependencies (scalability, energy reliance, regulatory buy-in) in an otherwise promising realm of decentralised finance. Crypto, it seems, is in for a frosty winter as market mania persists and price volatility soars.
With a pervasive market appetite indulging in trendy fixations, strategic value investing remains an elusive mindset. At the heart of recent impulsive trading behaviour is a stagflation-infused cocktail containing a pinch of pandemic disruption, a heavy hand of geopolitical uncertainty, garnished with pent-up demand and supply-side disruption.
The result: exorbitant inflationary pressure rising to a staggering 8.3% in the United States and 8.1% in the Eurozone, with McKinsey & Company attributing surging energy prices as the primary catalyst behind this acceleration.
Moreover, the Federal Reserve raised interest rates in the United States this year by a combined +1% (the highest rise in 30 years) and is expected to reach 3% by September, while Switzerland’s central bank (the Swiss National Bank) almost instantly followed suit, stunning markets by increasing its cost of borrowing for the first time in 15 years.
Impending inflection
As interest rates rise and the S&P500 plummets into bear territory, such headwinds are aversely compounding pandemic recovery — signifying an imminent slump, especially for emerging market and developing economies.
To put this into perspective, global growth forecasts have indicated an ominous decline over the first half of the year, with the World Bank revising its 2022 outlook from 5.7% to 2.9% — ringing stagflation alarm bells for years to come.
With this kind of turbulence, organisations are in for yet another bumpy ride as consumer sentiment stalls and corporate expansion efforts take a nose-dive. Cost-cutting measures with a focus on productivity will be the likely approach held by decision makers throughout this expected descent, combined with a push to optimise talent and retain employees in the form of non-monetary incentives such as professional training and company benefits.
Across the tech sector, significant hiring freezes are being observed, with leading players Alphabet, Amazon, Apple and Meta all losing significant market value while startups are laying off astonishing numbers. This deceleration, experts say, comes down to demand levels having normalised over the past year relative to explosive growth since 2020. However, incremental inflationary pressures will surely continue to alter this industry in profound ways as it strives to sustain current innovation levels.
Equally concerning, is how struggling industries (such as Airlines; Hotels, Restaurants & Leisure; Energy Equipment & Services; Automobiles; and Specialty Retail) will react to imminent economic inversion as they attempt to rebound post-pandemic. With the war raging on and driving energy prices sky high, economies are in for a steep downturn that will last for years to come. High prices and supply shortfalls will likely persist until 2024, impacting global food security and battering savings potential.
As the world spirals into economic disorder, it is crucial for regulatory and intermediary institutions to reinforce financial literacy, most notably: responsible consumption habits, cognitive awareness and sustainable investing. In contrast, cautious spending and heightened savings is bound to slow growth. Time will tell how stocks behave relative to efforts aimed at maintaining market equilibrium.
One thing’s for sure, failure to apply investment and consumption logic over the next 2-3 years will have far-reaching consequences for investors and consumers, alike. So, strap in, Goose, we’re about to ride into the Danger Zone.
Published via LinkedIn
Feature image on Pixabay
