Stocks: Back to Square One

What was the story that markets had already priced in the Fed’s interest rate hike? After the Federal Reserve took the decision last December to take the first step up on the interest rate ladder, the market sentiment definitely turned into bearish. For the whole year 2015, global markets flirted with the idea of a major correction and since the new year started the trend seems finally reversed.

Hard to argue that the Fed’s action has caused the recent market turmoil. There are so many factors at play, the sentiment just reversed. Corrections in the valuation of energy companies put a strong downward pressure on global indexes, but the fall in prices has involved a broader set of sectors. The S&P 500 has a YTD decline of almost 10%, back to the beginning of 2014. In Europe, the eternal “undervalued” market, has seen larger reductions in stock indexes with a meltdown in the banking sector.

My take is that the level of uncertainty, from inflation to growth prospects in emerging markets, passing through the oil price and a potential new Euro crisis, has convinced investors to take a break and make money with short selling. Just think that a hedge fund is shorting luxury homes in London. The stock market will go back on its feet once we will finally have new signs of inflation, in goods or asset prices. That sounds like more stimulus is desperately needed in the short term.

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