You may be hearing about the imminent collapse of the global stock market. But are you getting nervous and confused? Here are a few things to keep in mind:
The European stock market opened 1.8% lower Monday and dropped in the retail sector. The STOXX Europe 600 index fell by 5.6%, but is still above its March low. Tesla and Amazon also announced price hikes. Spotify dropped 7%. The Bank of England said that inflation may hit 11% this year. Despite these concerns, global share markets have remained on a downward trajectory all year. As the Fed prepares to hike interest rates, consumers are feeling more uncertain.
The Federal Reserve is on track to raise interest rates seven times this year, with the next one expected on September 14. The Fed is widely expected to hike rates by another half percentage point. But some economists fear that the rate hikes may not be enough, and that more aggressive action is needed. Therefore, the market could crash further this week. And if we hear more of these bleak predictions, our investment portfolios should be safe.
Asian stock markets fell across the board, with the Hang Seng, the Nikkei 225, and South Korea’s Kospi index all plunging. Meanwhile, European stocks fell, with the Stoxx 600 and Hong Kong’s Hang Seng falling by almost two percent. The Japanese yen, which is a key currency in the region, halted its slide against the dollar at the end of trading.
There are other reasons to be concerned about the global economy. Rising inflation and a weak supply chain are among the chief threats to the global economy. Meanwhile, geopolitical risk is adding to the growing list of concerns that are hitting investors. These are just a few of the main reasons why global share markets have plummeted twice this week. And with these two factors combined, the overall market is now more uncertain than it was before.
While the federal policy remains beneficial for the market at the moment, many observers are already questioning what will happen when the stimulus-related spending stops. When this happens, profitability will drop. A high cyclically adjusted price-to-earnings ratio is another warning sign of a market crash. This is the 10-year moving average of traditional price-to-earnings ratios and is used to gauge how profitable a company is.
One of the most common reasons why the stock market can go down is the Federal Reserve’s unwillingness to tighten monetary policy. But in this day and age, the Fed is increasingly wary of inflation and is reluctant to tighten monetary policy. It also worries about triggering a global recession if it increases interest rates too fast. As a result, it could lead to a worldwide stock market crash. The interconnectedness of economies means that a crash anywhere in the world is possible.
Investors took stock of second-quarter earnings reports that indicated a weaker economy but greater resilience among corporate profits. After reporting these reports, Netflix shares rose one-quarter, despite fewer subscribers than expected. The streaming company anticipates resuming subscriber growth later this year. Social media shares also declined, with Snap reporting flat advertising revenue in the second quarter and providing no guidance for the rest of the year. Ultimately, the global share market is still in a slump and will likely continue to fall further.