After a successful year 2021 for the markets, the recent performance of the main stock market indices has something to dampen the enthusiasm of some investors.
Since the start of the year, the Dow Jones has fallen by 9.25%, the SP 500 by 13%, and the Nasdaq by 21.5%. The tech-heavy index also had its worst day since 2020 on Thursday with a 5% drop.
Are soaring inflation, rising interest rates and lingering problems in supply chains pointing to a stock market crisis?
Three experts invited to the program Facts First alternate between optimism and pessimism on the issue. However, they agree on one point: “rebalancing” your portfolio could be wise in the current situation.
A “long-term” crisis
Georges Ugeux, former international vice-president of the New York Stock Exchange, evokes a perfect storm for the world economy – a tornado from which it will be difficult to recover.
If we look at the impact of the war in Ukraine, the very high and very badly managed inflation and the rise in interest rates, it is obvious that we are heading towards a difficult period to manage, because we are going to to take into account the impact that these different elements have on each other.
The current president of the firm Galileo Global Advisors says that the current situation is even more worrying than the 2008 financial crisis insofar as it is a more global crisis .
Whether in energy or because of supply problems, inflation is felt around the world. A consequence that Georges Ugeux attributes to the decisions of central banks and Western governments.
According to the expert, central banks erred during the pandemic by keeping interest rates too low for too long, which had the effect of boosting demand for goods and services, without a corresponding increase in supply.
Georges Ugeux describes interest rate increases as necessary , but insufficient , since war and supply chains are phenomena that fall outside the areas of intervention of central banks.
The public authorities which would have the power to intervene have relatively limited room for maneuver , he recalls. The investment banker accuses states of spending too much money, too fast during the pandemic.
Of course [governments] will take emergency measures, but it is time to ask questions about the completely irresponsible way in which states have spent and used the debt. »
A quote from Georges Ugeux, president of the firm Galileo Global Advisors
He considers the subsequent stock market correction inevitable , after a decade of growth on the stock markets.
Governments, he said, were living on cloud nine believing that this growth would continue. It is now quite the opposite that could happen, according to Georges Ugeux, who predicts a crisis in the long term .This is why the latter is not sure that this is the right time to enter the markets .
As for those who already have investments, he recommends that they consult their adviser to avoid having assets that are too speculative . Now is definitely the time to have a good balance between stocks and bonds.
A conjuncture rather than a storm
If they tend to agree with this recommendation, Jean-René Ouellet and Fabien Major do not share Georges Ugeux’s gloomy prognosis on the state of the economy, at least not in the Canadian context.