In the past week, investors learned that a recession in the United States is quite likely. In Europe, the situation does not look any better. Nevertheless, the mood of investors... may have improved.
Although it seems illogical at first glance, investors who hear about an impending recession may already be imagining a renewed easing of monetary policy, even though the cycle of interest rate hikes is still underway in the US and the European Central Bank has not even implemented its first hike yet. However, markets tend to discount what will happen over a 2-3 quarter horizon. Hence, a potential recession may have already been largely priced in either stocks or bonds. If the next step is to ease monetary or fiscal policy to help recover from a recession, investors may be on board.
This week alone, with Fed chief Jerome Powell saying he would go to any lengths to put the brakes on inflation, major U.S. stock indexes could see gains. For the week, the Nasdaq 100 Index seems to be up just under 5 percent, with the S&P 500 Index likely to gain around 4.3 percent and the Dow Jones 3.5 percent. Sentiment could also improve in the riskiest asset class, cryptocurrencies. In the past week, ETH seems to have gained almost 30 percent, LTC and XRP could rise more than 20 percent, and bitcoin more than 16 percent. However, it is important to note that with such massive declines of 70-80 percent, rebounds are relatively small.
Fear of a recession also seems to be leading to a shift in the business cycle and attitudes towards particular asset classes. Theoretically, at this point, commodities may be close to plotting their peaks, while bonds may be close to plotting their lows. Thus, it is the bond market, where yields may have risen in recent months, that may now be getting the most attention from investors.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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