Fear gripped investors in the first half of 2022. Inflation, the war in Ukraine and changes in monetary policy gave financial markets little respite. What will happen in the second half? We asked various experts about their outlook for the stock markets and the economy in the coming months. Bubbles, recession and inflation were some of the words mentioned.
Nobody thought at the beginning of the year that there would be such a major correction on the financial markets. First, the Russian invasion of Ukraine set off all the alarm bells in late February, encouraging a sell-off on stock exchanges around the world. Later, announcements by the Federal Reserve and the European Central Bank to raise interest rates caused an earthquake. “The injections of liquidity into the system had been so brutal that absolutely everything had been put in bubble mode, from fixed income securities to equities,” assured the financial analyst. Juan Ignacio Crespo in a recent interview with Finect.
While the decisions of the monetary authorities were awaited, investors have now started to be much more careful when putting their money into an asset. The sharp market correction has infected cryptocurrencies, which are going through another crypto winter. The sector has fallen from a valuation of $2.8 trillion in November 2021 to less than $1 trillion. “The bubble of absolutely everything has been burst. The English call it the everything bubble”he specified.
The stock market will continue to suffer
With a few exceptions like energy, almost no assets managed to come back between January and June. However, interest rates are one of the variables that determine the behavior of financial markets. “Currently, investors expect the ECB to hike rates by 280 basis points in 18 months and the Fed by around 230 basis points. That would be an incredibly fast pace, which is why investors reacted so sharply in the second quarter, and for the first time in decades, no asset class – including money market funds – has managed to post positive returns so far this year,” they wrote. noted with the manager Edmond de Rothschild Asset Management.
Investors went into panic mode in the face of a more aggressive monetary policy scenario. “The market does something in a masterful way: first it pulls, then it thinks. This is how it behaves in the face of any event full of uncertainty,” said Marta Campello, director of Abante Asesores, in a press release. maintenance for Finect.
The outlook for equities (listed shares) for the rest of the year is not encouraging at all. “We are in a scenario where inflation remains high and central banks continue to raise rates. The logic is that equities continue to suffer,” said Lucía Gutiérrez-Mellado, chief strategy officer of JP Morgan AM for Spain and Portugal, in a presentation of quarterly outlook.
The economy will slow down
The macroeconomic scenario has notably deteriorated in recent months. at the beginning of the year many analysts have predicted that an economic expansion would occur after the end of the coronavirus pandemic. However, the situation turned around like a sock. Geopolitical tensions, the energy crisis and rate hikes will lead to slower economic growth.
Are we facing an economic recession scenario? There is no consensus among experts on whether there will be a recession in 2022. “It is becoming increasingly difficult to be optimistic: the war in Ukraine, the dynamics of China and its relationship with the world, the prospect of high inflation, interest rates… But one thing is what the market is doing and another is the economy,” said Ralph Elder, managing director of the Iberian Peninsula and the Latin America from BNY Mellon IM, in a live Finect.
Some experts even believe that the economy is heading towards stagflation. It is a scenario in which economic stagnation and high inflation coexist. In other words, the economy is in a recession, but prices are rising.
Inflation will remain high
Prices have actually skyrocketed in recent months, first due to problems in the supply chain and then due to the outbreak of war. The consumer price index rose to 10.2% in June, according to final data from the National Institute of Statistics. This is the highest figure in the last 37 years. At the annual level, the European Commission estimates that inflation will reach 8.1% this year in Spain.
Experts believe that inflation will remain high, although some believe there will be a moderation in the coming months. “Inflation is going to be above the central banks’ target. We think we will see a gradual decline at the end of the year,” said Gutiérrez-Mellado (JP Morgan AM).
This is also believed by David Cano, CEO of Afi Inversiones, in an interview with Finect. “We have exceeded the maximums and from the autumn we will see a rapid moderation, but it is difficult for it to fall below 3% or 4% in 2023”, he underlined.
Commodity price moderation
Raw materials were also affected by the geopolitical tensions. The prices of agricultural raw materials, such as wheat or corn, have skyrocketed since the invasion, as have energy prices. However, more recently, many of them, such as aluminum and copper, have seen a sharp correction in recent weeks, a decline that has not spread to energy companies.
Experts now believe there will be even greater moderation in commodities as demand declines due to the slowing economy. “A central scenario for the second half of 2022 should be that commodity prices have bottomed out, the slowing economy will allow prices to moderate, and from the fall inflation will decline,” he said. anticipated David. Cano, CEO of Afi Inversiones, in an interview with Finect.