The week started with strong stock market turmoil in Asia, Europe and here at home, and the Oslo Stock Exchange finally fell 3.13 percent.
Elsewhere in Europe, too, major stock markets are down about three percent.
The turmoil across the Atlantic continued with a broad decline in the leading US indices that ended in a sharp decline:
- The S&P 500 fell 3.88 percent.
- Nasdaq fell 4.68 percent.
- The Dow Jones index fell 2.79 percent.
Thus, the Nasdaq tech index is down more than 30 percent from the new year, and on Monday all the major tech companies are down sharply. The broad S&P 500 is now down just over 21 percent since the new year, which officially qualifies for a so-called “bear market.”
It’s been a long time calm before the storm, and now it can seem like a storm has come, says fund manager Ann Elizabeth Tonley Mo at KLP Kapitalforvaltning.
She says the turmoil in the markets has been public for a long time, and the downturn in the stock market shouldn’t surprise anyone.
We at KLP always believed that the stock market was overrated. Now that it has gone down, we recommend sitting down or increasing, because there are many good buying opportunities when the market goes down. This applies to both funds and individual stocks, Tonle Mu says.
She advises her clients not to panic, but to be long-term, and remember that stocks always give better returns than most other long-term investments. In the case of KLP, she says there is more interest now in index funds when markets are turbulent, and that people are now more skeptical of active funds.
Another inflation shock
Friday showed inflation figures from the United States The Consumer Price Index (CPI) rose 8.6 percent in May. The growth came as a surprise to the market as analysts had forecast 8.3% growth in advance. This is also the highest price increase in more than 40 years.
Core inflation, that is, inflation adjusted for energy and food prices, rose to six percent.
– This is the inflation that most people in the market are feeling right now, Tonle Mu asserts.
There is significant imbalance in the economy with inflation well above target and a very tight labor market, says Elizabeth Holvik at Sparebank 1 Markets.
Interest rates must rise sharply, and after the inflation figures that came in last week, investors sat down and did their math again. If you look objectively at US inflation, the key interest rate will probably be around six percent, not 0.75 percent as it is now, Holvik says.
Since November last year, the US Federal Reserve has tightened monetary policy in hopes of curbing accelerating inflation. So far, the Federal Reserve has raised its key interest rate to a range of 0.75 to 1.0 percent, without having a significant impact on inflation.
In June, the Fed also began selling bonds in the market, as previously announced. Since the financial crisis in 2008, the central bank has been trading bonds in the market to stimulate the economy. When they are sold, they withdraw liquidity from the market, and the goal is to cool the economy.
So, this week, there is a lot of tension associated with the US Federal Reserve’s interest rate meeting on Wednesday. In advance, the Federal Reserve is expected to raise interest rates by 0.5 percent, it appears Minutes of the Federal Reserve’s previous monetary policy meeting in May. Some still believe that the Fed can surprise and raise interest rates by 0.75 percent.
It’s normal, Holvik says, with fluctuations before and after interest rate meetings. She does not believe that the market will calm down until it becomes clear what the central bank is thinking about raising interest rates in the future.
The central bank is now so late in this area that it will have to raise interest rates while the growth rate slows, and this increases the likelihood of it tightening so much that there will be a recession. There are few places to hide now, Holvik says.
The ten-year-old child rises
Still high and rising inflation has raised interest rates on US government bonds by ten years.
The interest rate which is often referred to as the most important interest rate in the world, as it is a reference for interest rates and financial figures around the world.
The ten-year-old American’s percentage is now 3.37 percent, compared to 3.05 percent before the weekend, an increase of about seven percent.
In isolation, higher interest rates are negative for stocks. This results in more costly loans, as well as lower present value of the companies’ future cash flows and dividends.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.
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