Markets are rattled, but resilient
America’s S&P 500 index had its worst quarter since the pandemic began two years ago, finishing down 4.9%. The tech-focused Nasdaq Composite did even worse, falling 9.1%, while Europe’s Stoxx 600 index dropped 6.5% in the same period. The UK’s FTSE 100 has bucked the global trend, thanks in part to its heavy weighting towards oil firms and miners rather than the strength of the UK economy, says George Steer in the Financial Times. The FTSE 250, which is more UK focused, finished down 10.6%, while the small-cap Aim 100 index dropped 16%.
Despite this, world markets have been more resilient than expected given “the grim events in Ukraine and the darkening global economic outlook”, says Patrick Hosking in The Times. Most have followed a V-shaped recovery since the initial shock of the invasion, with the S&P 500 up 8% since the middle of March. If there is any logic behind
“investors throwing more money at fully priced shares, with a major European country in flames and the world on the brink of slowdown” it may be because, with inflation soaring far above interest rates, the alternatives are even worse.
The inversion of the US yield curve – a bond market indicator that has predicted previous recessions – has spooked economists and traders, says Ben Casselman in The New York Times. But the real US economy is still “booming”. Firms are “adding hundreds of thousands of jobs a month” and unemployment is down to 3.6%, close to the “half-century low” it hit before the pandemic. “Corporate profits are strong, households have trillions in savings, and debt loads are low”, which should provide a cushion against the coming slowdown. Most forecasters think a US recession is unlikely this year. Then again, economists are “notoriously terrible at predicting recessions”.