For the first time since March, when a banking crisis was spreading panic among investors, CNN’s dread and Greed Index, which monitors seven indications of market sentiment in the United States, tipped into “extreme fear” on Thursday.
Their anxieties are currently being stoked by a painful combination of rising oil prices, anticipated “higher for longer” interest rates in the US and Europe, and a stagnant Chinese economy.
Oh, and the United States is once more on the verge of a government shutdown, which might result in a reduction in its credit rating and cause volatility in US stocks.
According to Michael Hewson, chief market analyst at stockbroker CMC Markets, the US and Europe may “well be heading for a prolonged period of stagflation” when rates “are higher for longer” and economic growth slows to the point where “we could see a recession.”
Stock markets all throughout the world have regained most of their losses after a brutal 2022. Since the beginning of the year, the tech-heavy Nasdaq (NDX) has increased by 33%, the Stoxx Europe 600 (STOXX) by 5%, and the S&P 500 index (SPX) by 11%.
However, during the past few weeks, anxiety has replaced the cautious optimism. Stocks on the S&P 500 and the Nasdaq have decreased by 5% and 6%, respectively, since mid-September. The 600-point Stoxx Europe index is down 3.3%.
Hopes that the US’s monetary policy will soon reverse in response to falling inflation earlier this month were dampened by the Federal Reserve’s signals that it would raise rates again this year and anticipates making fewer rate cuts in 2024.
Fed policymakers are worried that due to the US’s strong economic growth, inflation may rise once again and that higher rates will be needed to keep demand from rising.
Brent crude oil, the global benchmark, has increased 34% since a low in mid-June to trade above $96 a barrel on Thursday, its highest level since last October. This rise is mostly due to extended supply curbs by Saudi Arabia, Russia, and other members of the OPEC+ alliance of oil exporters, as well as Saudi Arabia and Russia.
Falling US oil stocks support the notion of a limited supply; last week, stockpiles at the highly watched Cushing, Oklahoma, storage facility fell to nine-year lows.
After massive quantities of oil were released to protect customers from the energy price shock brought on by the Ukraine war, America’s emergency reserve, known as the Strategic Petroleum Reserve, has likewise decreased during the previous two years. According to Goldman Sachs, Washington’s capacity to shield consumers from the effects of Saudi Arabia’s drastic supply cuts is being hampered by the reserve’s declining size.
In the meantime, Russia is increasing pressure by limiting exports of oil products like diesel and petrol, ostensibly to relieve domestic shortages.
A strategist at the investment firm UBS, Giovanni Staunovo, predicts that the price of Brent will fluctuate between $90 and $100 per barrel over the next months, concluding the year at $95 per barrel.
Stocks have also been under pressure as a result of numerous poor economic reports from China.
The massive real estate industry of the second-largest economy in the world is engulfed in a debt crisis, and youth unemployment is at all-time highs.
According to the nation’s National Bureau of Statistics, consumer spending, manufacturing production, and investments in long-term assets like property and machinery all decreased in July.
Despite a better showing in August, China’s economy has disappointed this year after the stringent zero-Covid policy was lifted in December. Investors expected a surge in demand as a result, but it hasn’t happened yet.
Shares of developer Evergrande Group and its two subsidiaries were banned in Hong Kong on Thursday, serving as a reminder that China’s real estate crisis is far from over and fueling scepticism about the company’s ability to restructure its massive debt load and avoid going out of business. Later, the business disclosed that allegations of crimes against its chairman were under investigation.
In areas of China’s financial sector that have provided loans to developers, high levels of debt in the country’s real estate market have sparked worries about stress.